The Personal Finance Podcast - I Sold a House for a HUGE GAIN. What NOW?- Money Q&A

Episode Date: February 19, 2024

In this episode of the Personal Finance Podcast, we are going to do a Money Q&A about what to do when you sold a house for a huge gain. 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. Thanks to DeleteMe for sponsoring the Show! Go to joindeleteme.com/pfp and us promo code PFP for 20% off! Shopify: Shopify makes it so easy to sell. Sign up for a one-dollar-per-month trial period at  shopify.com/pfp Monarch Money: Get an extended 30 day free trial at monarchmoney/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. 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/  Links Mentioned in this Episode:  Why Live-In-Flips May Be the Best Way to Invest in Real Estate with Carl and Mindy Jensen 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, I sold my house for a huge gain. Now what do I do? 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 doing a money Q&A with a bunch of great questions. If you guys have any questions, make sure you send us an email or hit us up on

Instagram, TikTok, Twitter, at Mastermoney Co. and follow us on Spotify, Apple, podcasts, or whatever podcast player, you love listening to this podcast on it. If you want to help out the show, consider leaving a five-star rating and review or follow this podcast. And we cannot thank you guys enough for those five-star ratings and reviews. They truly mean the world to us. Now, today, we're going to be diving into four different questions, and we're also going to dive into a scam that I have seen going around. And a lot of times on these money Q&As, we're going to be featuring some different financial scams that I've because I don't want them to happen to you.

So at the end of the episode, we're going to talk through that scam as well. And as we dive into this today, I am really excited to answer some of these questions. The first one is if I sell a house, but having decided where I want to buy my next one, how long can I keep the equity before I pay capital gains? Great question there. And we'll dive into that. Number two is where to actually put the money from the sale of a house if you are going to buy another house in the next couple of years.

The third question is about health care mutual funds. and this person was asking, you know, what are the best health care mutual funds out there? I'll give you my thoughts on sector-specific funds. And in addition, talk about some of the health care mutual funds that I would be interested in. And then lastly, question number four is what should I do if I have a 14.7% interest rate on my student loans? And this person is really trying to figure out and navigate a very difficult situation. We're going to dive into how to handle that situation because this is really, really important stuff for everybody to understand overall. So this is what we're going to do.

we're going to be diving into today. We have an action-packed episodes. Without further ado, let's get into it. So the first question is, if I sell a house but haven't decided where I want to buy my next one, how long can I keep the equity from the first house before I have to pay the capital gains? This is a fantastic question, and a lot of you listening right now may be in this situation. Home prices have appreciated significantly to the detriment of the millennial population or Gen Z who are looking for a house, but they have appreciated dramatically. And if you have a large gain on your house, then you really have to figure out what to do in this situation.

Most people may be trying to capitalize on the gains on their houses, and then they're going to either downsize if you're getting closer to retirement and or you're trying to buy your dream home and you want to save up maybe some extra cash over time. But you want to make sure that you capitalize on those gains. If that's you in that situation, and you're trying to figure out how do I navigate this? because now I have this huge pile of cash, we've got two questions today that are going to actually talk through this, and this is the first one.

So at the top here, one thing you need to understand is if you're in the United States, then if you sell a house, depending on how you file your taxes, you actually are tax exempt from a portion of the profit. So, for example, if you sell your house and you've lived in that house for at least two years out of the last five years, then you are tax exempt from some of the capital gains up to a certain amount. So if you file your taxes as a single person, then you are exempt all the way up to $250,000. If you file your taxes married filing jointly, then you are exempt up to $500,000.

And this is an amazing benefit for a lot of people. Because if you bought a house for $200,000 five years ago and now that house is worth $500,000 and you file married, filing jointly in your tax return, you have $300,000 tax-free dollars. that you have there. This is why I love the concept of live in flips so much. If you've never heard us talk about live in flips, this is a way to actually live in your house for free, where you buy a house that needs some fixing, you fix it up, and then over the course of the next couple of years, you live in that house over two years while you're fixing it up, and then you sell that house, and you can make a profit, a tax-free profit, which is really, really powerful. And so live

and flips are a great way for folks if you're looking for a way to actually live for free and reduce that housing cost, to really have a major financial house. overall when it comes to your housing situation. And most Americans out there spend the majority of their income on their rent or their housing. And so this is a great way to reduce that expense. And you can spend so much more in other areas if you figure out how to do this. So that is just one way to really consider and think through live and flips. And one other thing I want to note about live and flips because I know a lot of people are struggling with the concept of should one of the spouses stay home if they have children. And child care is really, really expensive right now.

they're really struggling with this. Live in flips can be that second income that will allow you to have one or two, you know, your spouse stay home. So say, for example, you live in that house over the course of the next couple of years and then you flip that house and you make $100,000 profit. Well, that's a $50,000 per year salary that you could be utilizing and then one of the parents are staying home and spending more time with their children. So that's just another creative concept that I always think through some of this stuff for

folks who want to spend more time with their children. I think that is another way to do that. Now, obviously, these gains are not guaranteed. Real estate does not go up forever. So this is something where there are risks involved. But it's just another concept that you can really think through and see if it fits for you. So if you're filing single, $250,000 of those gains are completely tax-free. $500,000 are tax-free if you're married filing jointly.

And if you're looking to reinvest the equity of your first house into another home but haven't decided where to buy next, this doesn't directly impact your capital gains exclusion. Because there's not a specific rollover period. There used to be a rollover period in the 90s where people had to roll over a certain amount, but that doesn't exist anymore. So you don't have to roll over a certain amount or have that rollover residence replacement rule. And that used to be required, but those rules are gone now. Now, if you do have a capital gain above that $500,000 and you're married filing jointly

or above that $250,000 and you file single, then you're going to figure out what that capital gain is. And if you want to calculate what that capital gain is, you subtract your basis in the home. so it's generally what you paid for plus any improvements. So you can add improvements to that, but it's generally what you paid for and any improvements from the sale price. So if you bought a house and you bought that house for, I don't know, let's just use a drastic example. Let's say you bought a house for $100,000 and then you sold that house for $700,000. Then your cost basis is going to be that $100,000. And then if you file married filing jointly, for example, then $500,000, then $500,000,

$100,000 is going to be tax exempt. That means you have $100,000 to pay capital gains tax on. So it's a smaller amount than a lot of people think. Now, if you are selling a million dollar house, this number becomes much, much larger. But if you're selling a single family, two bedroom, three bathroom house in the middle of the Midwest, for example, then this number may not be a massive differential. So you would just be subject to capital gains outside of those numbers and outside of your cost basis. Your cost basis is what you purchase that price, for plus any home improvement. So I hope this helps. This is a simple way to kind of think through this, but there is no timeline of when you have to buy the next one to be exempt from those capital

gains in that area. Now, you would have to, you know, for the remainder or the extra money in cash that's there, your tax return is going to come up the next year. And then that is when you would have to kind of talk through that with your CPA. Look at that specific situation. So the number one thing I would do is if you are in this situation and you had a massive gain, let's say, for example, you had a $500,000 gain. That would be a time to really talk through this situation with your CPA. Because $500,000 having to pay capital gains tax on that is going to be a very large number. Your CPA is going to pay for themselves just by making sure you have this conversation with them and seeing where can I put these dollars in order to ensure I don't have to pay massive amount of taxes. So that is another

option there as well. Now in real estate investing, we have things like the 1031 exchange, but you have a certain time frame where you actually have to allocate those dollars. This is very different if it's your personal residence. So talking through with your CPA in your personal situation to see if there's any other way that you can kind of avoid some of those capital gains tax if it's way above that $500,000 profit, then that would be a great thing to do as well. The second one is my husband and I recently sold our home because we moved and we have the profits of about $700,000. First of all, congratulations. That is a lot of money and that is a great profit to have on the sale of a house. So absolutely amazing. Congratulations for $700,000 profit. That is absolutely amazing. And they have any high-yield savings account while we wait to buy our home in our new area.

If we are going to wait one to three years before buying, what do you suggest doing with the money? So first of all, you are doing the exact right thing right now, which is you are moving to a new area. And most likely, I'm assuming you're renting or you're staying with family or whatever else you're doing, but you are assessing the area to see exactly where you want to live before you go buy. another house. And what most people do is they buy a house way too quickly. And if they don't know the area or know where they want to live, then it's really, really detrimental if you pick the wrong area and say, for example, the housing market has a correction. That is the last thing that you want to do is buy a house and then you're not going to live there for at least seven to 10 years. Our rule is really 10 years. But seven to 10 years, you can get away and squeak by with seven years because

that's how long it takes for a cycle, a housing cycle, to actually fully correct. So you could buy a house and then say, for example, year two, you want to move out of that house and there is some sort of recession and housing prices drop. Well, you could be stuck in a house that has negative equity if you move into the wrong place at the wrong time. So making sure that you understand every time, every person listening to this podcast needs to understand that if you're going to buy a house, you need to be willing to live in that house for the long term, meaning the next seven to 10 years.

people who recycle houses are going to get into a negative cycle if they do this when there is a downturn or you just got to be willing to stay in the house that you buy. So every house you buy, just be willing to stay there for 10 years. And then if you want to move and you want to capitalize on some gains and move to another neighborhood, then you can go ahead and do that. But just be willing to stay there for at least 10 years in the back of your head. So congratulations, this is a ton of money and you have it in a high yield savings account. Now, if this were me, I would also have it in a high yield savings account,

meaning I would keep that money in a high-yield savings account in order to protect it against life. What would happen is if you invested those dollars, say you put it in index funds at ETFs. And again, we had another recession, that amount could get cut in half. And so for short-term cash like this, any short-term cash like this, one to five years, I want you to keep it safe in something like a high-yield savings account. And so the first thing I would do is when I got that cash, I would shuffle it right into a high-yield savings account immediately. Then you can assess what do I want to do with this as I start to figure out some of the these things. Now, if you see things like there's CDs out there that have a higher interest rate

and you see you can get one to two percent higher, well, this is a large enough amount of money that it is going to make an impact where you put it. And so thinking through, hey, number two, do I want to put some of this money in CDs if I am 100% sure I'm not going to use it over the course of the next year or whatever the maturity date of that CD is? So the way CDs work are you put your money into the CD and there's a maturity date. Sometimes it's one year, sometimes it's three years, sometimes it's five years. It depends on how long you pick for that CD rate. But the cool thing about CDs is locking them in and you know that interest rate is going to stay whatever that interest rate is. And so I love CDs right now for that reason because interest rates are high and I'm assuming and I'm

just guessing, but I'm not into predictions that interest rates will drop at some point in time over the next couple of years. They may not. I have no idea. I don't have a crystal ball. But I'm just saying that is a possibility. And so with a CD you can lock some of those interest rates in and you can even take a portion of that money and lock those interest rates in. So that'd be the second place I would consider. Obviously, a money market is also very similar to a high yield savings account. So those two I interchange, but you can also look at a money market account. And sometimes they have slightly higher interest rates, and that would be helpful as well. If you can get a 1% interest difference on some of these things, I mean, that's $7,000 per year. So it's not nothing when you actually get those 1% interest

differences. So that could be paying for closing costs. That could be helping for a lot of different things. And so making sure you actually optimize some of these things is going to be really, really helpful. Now, maybe you can go out there and there's CDs at five and a half percent. I know, for example, allies rates at the time I'm recording this are like 4.3 percent on a high yield savings account. There are some high yield savings accounts that have higher interest rates, but just making sure maybe you diversify some of this stuff as well. And then you can look at T bills or Treasury security, see what the interest rates are at the time that you're looking here. That is another great option. And maybe there are some great interest rates. But really, I just

like the flexibility and the liquidity of having things like in a high-yield savings count or a CD or a CD ladder. You can get maturity dates on a CD ladder as well. And then lastly, you can look at like short-term bond funds, but I'm not super, super interested in that. I'd much rather have it in a high-yield savings count one and then a CD2 and high-yield savings account money market, like I said, are interchangeable. So that's the order I would look at this, but you have it in a great, fantastic spot. You have it in the spot that I would have it right now, especially directly after a sale until I figure out what I want to do with this money. I wouldn't transfer it directly into a CD. I'd put it in a high yield savings account, kind of assess the market,

look for the correct CD and then move it that direction if I wanted to go that route, if the interest rates were higher. Sometimes CD interest rates are not higher than high yield savings counts. And so just assessing what is going on in the market. That is exactly how I would approach this and ensure that I am making the right decision for me, my family, and the next move that I want to do. But you want to keep this money safe. You don't want to invest these dollars, especially if you're to spend it within the next five years. Keep it safe so you make sure it doesn't get cut in half or a quarter gets cut off the top. You want to make sure that this money is safe and preserved, and it's the amount that you want in that account. So absolutely amazing. Congratulations for that

sale. And I can't wait to see what you guys do with it. And it's going to be fun, probably house shopping with that amount available. So enjoy that time. That is a fun time to be in. The next one is I want to invest in a healthcare mutual fund with Vanguard. Any suggestions? All right. So there's going to be a lot of layers to this in terms of how I would think about investing in index funds and ETFs. Now, if you are very bullish on health care sectors, then maybe you are interested in investing in a healthcare index fund and ETF. I have no problem with you doing that overall. It's not something I personally do. I don't invest in sector specific index funds and ETFs. But if I was going to, health care is not going anywhere, meaning that health care is something that is going to be around forever. we as humans are always going to need healthcare.

So I don't think you can really go wrong with a healthcare index fund or ETF as long as it's from a reputable company and you do a ton of research into that specific fund. Now, one thing I don't want most people to do is what happens with the sector-specific ETFs and index funds and mutual funds is that the mutual funds specifically are going to have higher fees than are the index funds or ETFs. And so you really got to make sure that when you look at this, stuff, you are looking at the fees first and then looking also at the long-term returns. So a couple of things to think about is, how long has the fund been around?

One, because I want my funds to be real old in the healthcare sector. Number two, what are those fees? And I'm going to show you one today. I'll analyze it with you here on the podcast and we'll talk through it. But number two, what are those fees? And then number three is how do I need to think about this in terms of my overall asset allocation? because now your asset allocation is shifting to stocks in a specific sector. And so you want to think through, does this fit my asset allocation and or is this just a small

percentage of my portfolio that I want to diversify into some of these sectors? Really, really important stuff to think about here as we go through this. Now, typically when it comes to these sector-specific index funds or mutual funds or whatever else you're looking at, a lot of times they will have a lower overall volume as well because there's not as many people getting into it as something like an S&P 500, for example, or a total stock market index fund. Those are going to have a little more volume moving. And at the same time, it's still one of those things that you want to look through this stuff. So I'm going to analyze one on here and kind of talk through this. I think this is really, really important for most people.

And I'm going to show you how I analyze stuff, meaning that I'm going to give you kind of the order of how I analyze some of these index funds and ETFs and mutual funds. One thing I would not do is I would not get the mutual fund route because, again, like I said, index funds just have lower costs. They're just going to follow a benchmark. And they're going to go through this in a way that is really, really helpful. So again, be very careful with healthcare. They have funds out there with 1% fees, and they are littered all over the place. So you've got to really be careful. Now, the one I'm going to analyze today is I'm actually even not going to go with the mutual fund at all. I'm going to go with, A, I looked at index funds. And the interesting thing about Vanguard index

funds when they're in the health care sector is the only index funds that have a low enough fee to kind of fit some of my criteria or the Admiral Shares. But with the Admiral Shares, you have to invest a minimum of $100,000. So for most people, that's just not practical. And for most people, you may not want to have $100,000 in health care. So what I would do is I would consider looking at the ETF version. Because if you look at the non-admiral shares, the expense ratio goes up to 0.32%. So if this was me personally, and none of this is investment advice, I'm just going to

tell you how I think through this. But if this was me personally, I'd be thinking through the ETF, because the ETF typically are going to have lower expense ratios, and they're more liquid. And this is why I love ETF so much is because that liquidity is going to be super, super helpful in terms of your overall strategy. So ETFs are amazing for this kind of stuff and amazing for what you want to do. So what I'm looking at right now that I'm going to analyze is called VHT, and this is the Vanguard Healthcare ETF, a very broad range of healthcare ETF. And I'll show you the top 10 companies in this as we go through this as well so that you can see how they construct some of these things. So the ticker

symbol is VHT.I.V. And what I'm going to do is I'm going to go through this and look at some of the things that I really, really care about. So the first thing I care about really is the expense ratio. And the expense ratio on this is 0.10%. So this is not 1%. It's 0.10%. So it's 10 basis points, meaning that it's a very low cost ETF for a sector specific fund. And so in the healthcare space, this is a sector-specific fund that has a very low cost, which I love to see. And what it does is it seeks to track the performance of a benchmark index that measures the investment returns of stocks in the health care sector. So this is a passive investment. It's passively managed. And the cool thing about this is, is you can buy these ETFs anywhere, meaning at any

brokerage, you don't have to have a Vanguard brokerage. You could be at Fidelity. You could be at M1 Finance. You could be at Charles Schwab and still be able to buy some of this stuff because it's an ETF. So it gives you that option. Then I'm going to look at performance, because performance really matters to me over the long term. So what a lot of people will do is like right now at the time I'm recording this, which this does not matter at all, but year to date, this ETF is only returned 2.36%. Well, if we compare this to the S&P 500, let's just compare this to something like VO, for example, and I'm going to tell you what the return is on VOO, which is why I prefer some of these large cap index a lot of times, is the expense ratio on VO, for example, is 0.04%. And in addition,

the year-to-date return at the time recording this is 1.68%. Now, when you look at the one-year return, which is a massive difference, for the healthcare VHT-E-F, the one-year return is 5.77%, where the one-year return on V-O is 20% at the time recording this. So it's a massive difference on that one-year return. And so just thinking through, because I'm recording this in February, so year-to-date is going to be low right now, but that is a 15% differential in one year.

Now, short-term returns, I'm going to say this until I turn blue in the face. Short-term returns do not matter. What matters is long-term returns. I don't care what happened in the short-term because the short-term is for emotional investors, people whose emotions are flying around all over the place. The long-term is for good businesses. And so I want you to remember this as you think through this. So when I assess this, I am looking at 10 years or beyond.

So this fund has been around, this ETF has been around since 2004. That means it's been around for 20 years at the time I'm recording this. And so that is important to me is having a long-term fund that's been around for a long time so I can assess how it's done. Now, over the course of 10 years, meaning that from 2014 to 2024 when I'm recording this, 11.08% is the return over the course of the last 10 years. Well, if you got 11% on something over the course of 30 years, you know how fast that can grow. But since inception over the course of 20 years, 9.97%, meaning that lived through the Great Recession,

that lived through COVID. and still got 9.97%. So really great stuff there. And it's close enough to the benchmark, meaning that they actually compare this to the benchmark, meaning what the index it's actually tracking is. The index that it's actually tracking is 10.10%. So it's close enough. It's within that time frame that really is going to be helpful overall. And so I want to make sure that I am analyzing this properly, and that is just the return analysis and how I would kind of think about this. Now next is I would look through and actually analyze some of this stuff when it comes to some of the volume it does. You know, I would look at some of the things like the turnover ratio, which the turnover ratio is really important because it's going to tell you how much you have to pay in taxes on some of this stuff.

So the turnover ratio on this one, for example, is 4.1%, really, really low. 4.1% is a low turnover ratio. Anything above, you know, 50% is going to be a really high turnover. ratio, you'll see a lot of mutual funds with high turnover ratios, but a low turnover ratio is 4.1%. And now, when you analyze some of this stuff, you can use things like portfolio visualizer, but I just go to the Vanguard website. That's where I'm on right now as I'm talking through this with you and just looking at that there. And then I would look at some of the sectors that they're in. For example, this one's in biotech. It's within health care distributors,

health care equipment, which is a fantastic business. Pharmaceuticals is 27.3%. And I'd probably want to see it not too heavily weighted in pharmaceuticals, even though that helps with the growth. But that is also a riskier asset. So for me, I would like to look at some of this stuff. I actually used to my initial job when I was a financial analyst was in the healthcare sector, so I know it pretty well. And I know some of the risks and rewards when it comes to that. So as we come down here, we're going to look at some of the top 10 companies in this fund. And there are some great companies at the top of this list from United Healthcare is actually the highest weight in this fund at 8.4%. Then we have Eli Lilly and Co., which is a fantastic company at 8.13%. Johnson and Johnson.

The OG Johnson and Johnson. Old J&J is in here at number three. And I would love to see it heavily weighted in Johnson and Johnson. That is 6.5%. They've been around for a very long time. Merck & Co. Another great company, 4.7%. Abbey V, 4.7%. Thermo Fisher Scientific is 3.5%. Abbott Labs is a great pharmaceutical company at 3.3%. Pfizer, another pharmaceutical company, at 2.81%. And then we have Amgen and some other great weights there as well. So these are things that you can see the percentage of the fund and how much is weighted in there. And so that's going to show you really what you're investing in is some of this top 10 holdings are going to have a huge weight. And these top 10 holdings are interesting. So you can compare this to something, for example,

like the S&P 500, which actually holds a couple of healthcare companies in it. The S&P 500 is 12.6% in health care. And the top healthcare company within the S&P 500 is also typically going to be United Healthcare. Johnson and Johnson will be, you know, top weighted in there as well. And it shifts a little bit over time as you go through this. But that is what, what we're looking at here when it comes to the healthcare ETF. And then I would just assess what other things kind of matter to you. The price on this one, price doesn't matter as much. It really just matters how many dollars you have in there, specifically with fractional shares that we have now. That is not as big of a deal. But I love analyzing this stuff. And if you guys want me to

analyze this stuff even more frequently, just let me know and send me over some ETFs or index funds you want me to analyze specifically. And then we're also going to do some analyzations in Index Fund Pro. So if you guys have never heard of Index Fund Pro, it is our index fund and ETF course that we teach you how to invest in index funds and ETFs. And in index fund pro, if you guys are in index fund pro, send me over some of these and I will analyze them on video and show you kind of how I look at some of this stuff as well. I think it's really, really important for you to understand how to look at this if you're going to go sector specific. I am a investor who just really likes to go, you know, S&P 500 or a total stock market index

fund, have a little bond fund in there, maybe have a little international fund in there. But for the most part, I am a broad spectrum investor when it comes to index fund. and ETFs. I don't go very specific. And really, I don't think anybody should have more than, you know, one to six funds in their portfolio. I think then you're just getting way too out of whack. Simplify, simplify, simplify. That is always the way I like to go. But I love analyzing this stuff, too. So that's kind of how I look through this. On YouTube, we have a ton of videos of me analyzing, for example, VLO and VTI and all these other index funds and ETFs. If you go to the Androgen Kola YouTube channel, you'll be able to see me analyzing some of that stuff in portfolio

analyzation. In fact, those are my most popular videos, I think, on YouTube are those portfolio analyzations. And I go through some of the top Fidelity funds, for example, and the top Vanguard funds, and the top Schwab funds and all that kind of stuff as well. So if you're interested in that, make sure you go check those out on YouTube. Now, let's jump in to the next question. The next one. 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 a 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 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 guess

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One is I struggle with student loans that have high interest rates. One of my loans has a 14.7% interest rate. I just changed my major and currently taking a semester off to work and trying to pay off some of my loans. Should I save my money so I don't have to take any more loans out or pay off my current loans? So I have a couple of questions here. One of the things that I would ask myself first is why is my interest rate so high? If this is a situation where you just don't have a lot of credit history and your interest rate is really high, then I would try to figure out, well, can I find a lower interest rate student loan going forward

if I'm going to take that route? But I love your thinking. And I love the willingness that you have to have the work ethic in order to make sure that you stand on a strong financial ground up front. That means you have it. You got what it takes to become a wealth builder, which is what we love here is I want each and every person listening to become a wealth builder. And if you want to become a wealth builder, then this is the philosophy and the mindset that

you have to have. Most people will get into student loan debt and not think twice about it. And they'll say, oh, I'm going to deal with that when I graduate. And I know because I did the same exact thing. And most people I know did the same exact thing. So the fact that you're even thinking about this, really, really powerful and great stuff. Now, when it comes to managing student loans, especially when it's really high interest like that, I think what you're doing is correct.

And if you're already having the interest rate kicked in, I'm not sure if it's kicked in yet or not. If you haven't graduated yet, it probably should not be kicking in. otherwise you have a predatory student loan is what I would call that. But if it is kicking in, then I think it's definitely time to make sure that we are getting that paid off before we continue moving on with school. Otherwise, you're going to get yourself in a mountain of debt. And so this has to become priority is to get rid of this 14.7% interest rate loan. This becomes priority over most everything else. And it's not a balance of like, should I invest or should I pay this off? Nope. You should pay this off first because this is going to have a higher rate of return than it would

to even invest. You know, the stock market, on average, has gotten a little over 10% over the course of the last 50 years, for example, but it still doesn't matter. Even though last year was 20% rate of return and we had all these amazing returns over the course of the last couple of years, this is something where you really got to think through and make sure you get rid of this student loan, because this is a guaranteed rate that you're going to have to be paying and it's going to compound against you if you don't get rid of it. So amazing job thinking through this. So what I would do is I would first kind of look at this situation, assess this situation, and if you change your major, then maybe it's time to get rid of that first major's loans,

knock those loans out. And then if you can, if you have a job that is paying you enough, get some cash going and get some cash reserves built up so that you can start paying cash for college. Now, this is much more difficult to do than just for some guy on a podcast to say this, because it takes a lot of work to build up enough cash to even pay for college. College is thousands and thousands of dollars. So it depends on the college you go to. If you're in an In state school, obviously it's going to be cheaper. If you're out of state, it's going to be more expensive. But it's one of those things that really you've got to assess what the cost is

and how long is it going to take for you to save up enough money? Because the last thing I want you to do is lose out on the opportunity cost that you could be earning more. Say, for example, you're going to school to be an engineer. Well, your earning potential is going to be much higher. And then you can commit to a lower interest student loan if you had to. And then you can go out there, earn that additional income and then just pay them off aggressively. If you have this mindset, I have no doubt that you could go and pay those off aggressively. as long as you're thinking through it in this way.

So what I would do is I would look at that high interest debt as a pants on fire emergency. I would get that paid off as fast as you possibly can. And if maybe you can go to school online for one or two classes at a time and you can pay cash for some of those classes, then I would do that too just to kind of continue on your education. But if you can't, you just want to get rid of this loan. Maybe the loan is larger than, I don't know how much the loan is, but maybe it's a large amount of loan. You want to get that paid off quickly so it doesn't start to compound. And then you can come back and start to go back to school and try to pay cash.

word if you can't do i am not opposed to student loans i'm just opposed to high interest student loans and so that is the difference between those two because you don't have to go to college but college has some opportunity and you're eating into that opportunity costs especially if you have a major now if you switch majors to an art major or something like that then i would pay cash for the whole thing the reality of this is is that there are certain majors where you are going to make less money than with other majors right off the bat now my sister for example is an art major and she works on wall street so sure you can get an R major and you can go out there and make more money, but it's going to take you a little bit of time. It took her some time before she could actually get to a level where she was making a

great income. And so this is the thing that I really think people need to figure out is early on. You really want to make sure that your income potential matches what that interest rate is going to be. And so that's how I would think about this. So the decision framework here is, make sure you have a little cash saved up for an emergency fund. You know, $5,000 is going to help you, especially if you are paying for everything on your own and you're not getting help from, you know, parents or anything like that. Then I want you to look at that high interest loan. I want you to aggressively pay that down. That 14.7% needs to come down. Then if you're going to go back to school and you need a student loan, consider the rates. Do not take on a loan that's 14.7%. Look for loans that

are 6% or less. Look at government loans maybe are an option. But do not go to some of these predatory companies. I know there's a lot of companies out there now that are just really becoming predatory when it comes to student loans because people don't understand what they're getting into. And so that is the hardest thing there. And then consider your career. path, meaning that consider which career path you are taking. And if you are taking a low-paying career path because you're passionate about it or something like that, then you need to make sure that you're paying cash. If you're doing a higher-paid career path, then you can consider student loans. But obviously, paying cash is always better than taking on a student loan. Just making

sure that interest rate on that loan is much, much lower. So this is how I would think about this. Congratulations on changing your mindset and having a mindset to actually think through this and being willing to stop. It's very hard to do that. It's very hard to be in the middle of college. You're trying to grind it all out, and then you're going to stop. So amazing, kudos to you, and I wish you really well. And let me know how this goes. Let me know what you decide to do. I'm really interested to see what you do, and I'm really excited for your future here. All right. So the last segment here that we're going to talk about is financial scams. And you know that I talk about financial privacy all the time and online privacy. And this is something that I'm really passionate about because a lot of

people don't talk about this. And this is getting worse and worse where more and more people are getting scammed out of their money. And the last thing that I want to happen to you is to see something like you send money to the wrong person, for example, and then all your money is gone and you just lost a significant portion of your net worth. A lot of times people just do not think about this stuff. And this is one of the most important things that you should be thinking about. So becoming financially bulletproof is really, really important. So I'm going to feature and highlight and do some financial scams that are out there just to highlight some stuff that's going on in current events. And I think it's important for us to all kind of know that these are going on so that we can think twice

and just really be alert out there. There are stuff where I actually invest in myself when it comes to this stuff. I just bought another course on how to make sure that you are protecting yourself online. And I just think it's really, really important to make sure that you do some of this stuff. And so when we do these segments, this segment is actually presented by Delete Me. Delete Me is a partner that we absolutely love here at the Personal Finance Podcast. And what Delete Me does is they help you remove your personal information online. So say, for example, you Google your name or you Google your address and you quotations, Google your name, your address, your phone number, any of that kind of stuff. What you're going to see is your name is going to pop up all over the place on websites

you do not want your name to pop up. And what happens is that if somebody gets a hold of a portion of your financial information, what they can do is they can take that portion of the financial information, Google your name or Google your information and find the rest of the information they need to pull off a scam. And so really important to remove your personal information. Delete me actually does all the work for you. You sign up with Delete Me. They go through the process of removing all your personal information from all of these scammy data brokers out there who are just taking your personal information and highlighting it online and they'll actually go in there and remove it for you. This takes hours and hours if you don't have some service like this doing this. And so Delete Me does a great job at this.

This is who I used to do this. And I think they have a really, really powerful tool here. So if you go to join deleteme.com slash pfp, you're going to get 20% off of that service and you'll be able to save hours and hours of time. So it is my favorite way to go ahead and do this. Now, what we're going to be talking about today with some of these financial scams is an exact situation where somebody got a portion of someone's personal information and they were able to pull off a scam because they went out there and they Googled their name and they were able to find their email and all that kind of stuff. So this is very, very interesting. But this is from Andy Cohen. Now, I didn't know who Andy Cohen was prior to reading this story. A lot of you out there may know who Andy Cohen is.

I am not the best when it comes to celebrities and knowing who they are and what their name is. But Andy Cohen is actually coming out and talking about this because he does not want this to happen to other people. And so I think this is a really, really powerful message and a lot of people need to hear about this. So what happened is that Andy Cohen lost his debit card. And so when he lost his debit card, he called up his bank and said, hey, I lost my debit card. I don't know where it is. And so he received a fraudulent email mimicking his bank's fraud alert. And so there was an email that came in that looked exactly like his bank. And so it looked just like what his bank looked like. The email looked like it was from his bank. But he clicked the link in the email. And when he attempted to log in, he basically

was giving the scammers his login. So he clicked a link in the email. The email looked like it was coming from his bank. Let's say it's Chase, for example. Then he went in there. It looked exactly like Chase, clicked on that link and started to log in. When he logged in, the scammers basically got all of his bank information and his bank account. The scammers further tricked him into sharing verification codes under the disguise of securing his account, which was actually authorizations for wire transfers from his account. So he lost a ton of money here because now a second email came over that said,

hey, these are verification codes that are going to help you protect your account. but instead he sent back the verification codes that were authorizing a wire of money out of your account. Now, if you do not know how wires work, if you've never wired money before, which is why every time I wire money, I am scared out of my mind half the time. But if you wire a large amount of money, what's going to happen is that when you send that money, it is very hard, if almost impossible, to get back if you wire money to someone and then you authorize it. And so this is something where they scammed him into getting into his account. And then B, they scanned him into his account. And then B, they scanned him into actually wiring money into their own bank accounts.

And so there's a couple of things that he said where it just looked exactly like the bank. And you may be thinking to yourself, I would never do this. This is not something I would ever do. But if it's disguised correctly and you're moving quickly and you're busy and you're not really thinking on your feet at that time, this can happen very, very quickly. So number one is to check the email address. You've got to really look at that email address and make sure and verify the sender's email address. I've had a couple of these come through where even if it's from my bank and it looks a little bit off. I'm not even, I'm deleting the email immediately.

I'm not even looking at that email. I'm going to be logged into my specific account. I'm going to come out and I'm going to go to www. You know, Bank of America.com or whatever it is or Chase.com. And I'm going to do it myself. And I'm going to go in there and actually log in myself. I'm going to put in the URL myself so that I can do this. Or I'm going to use my favorites or whatever else you do.

So that's number one is make sure you check that email address and do not open the link in your email address to go into your bank. Let's just make that a rule now. Don't open anything to log into your bank, log in yourself, and take the path yourself and take the extra three seconds to log in. Number two, question the urgency here, because what a lot of times scammers do is they try to make things extremely urgent. They try to make it look like, you got to do this right now.

You got two minutes before you actually can give us this verification code. Otherwise, it's not going to work. And so they'll push for urgency, making you really not be able to think through what you're doing. So watch out for any urgency. urgency when it comes to banking is always a very big red flag. Any urgency whatsoever. And so you really want to think twice if you see urgency come up. I want you to be careful on that.

Number three is be cautious with your personal information. The less personal information that you give out online, the better, obviously. But I want you to be really, really cautious. And if you have to give out your personal information, really think through what you're doing here. Really think through what you're doing. If you're going to buy a Christmas present for your kids, it's on some Joe Shmoe site that you've never heard of before, maybe just don't do it. Maybe don't put your information in there or maybe do it through a pay portal like shop pay from Shopify or Apple Pay or whatever else you use.

Make sure you do it through that paid portal if you're going to go on some of these smaller websites or these drop shipping websites or whatever else you're looking at. So just be very, very cautious. Make sure that these are legitimate institutions. Make sure you look at the actual sending address for any banking or personal information whatsoever. Don't click links and emails to go to your bank. Instead, go to your bank yourself, take your own path to get there to make sure that you're actually going to your bank. All of these are really, really important and really, really think through some of these emails. They're getting better and better and better. And so it is really, really important, especially with AI and with video and all this other stuff, AI is really, really

making it trickier to understand scams. So we got to protect ourselves. All of us listening have to protect ourselves so that we do not get scammed. Really, really important stuff here. So listen, I hope you guys learned a ton in this episode. This is a action-packed episode, all kinds of stuff going on. These episodes and Q&As are getting longer and and a lot of you have asked for more Q&As, which is why we are doing more of these. If you guys want to give me feedback or you want to ask your own question, shoot me an email and or send me a DM and we will go through those and add those to money Q&A. The emails I'll see faster usually because we get a lot of DMs. And so the emails I'll see quicker. So if you shoot me an email, a lot of times that is a high

probability of getting on the show and we put it on a list to get it on the show. So thank you guys so much for sending in these questions. We truly, truly appreciate you. And we got to work on some prizes or something for folks who are sending questions that we can send out to you. I'll talk to the team about that as well. So anyways, thank you guys for investing in yourself. Thank you for listening to this episode. We will see you on the next episode.