The Personal Finance Podcast - Investing Your First $100K, Refinancing, Real Estate Investing and More! - Rapid Fire Money Q&A

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Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. Investing your first 100,000, refinancing, real estate investing, and more. This is going to be a rapid fire money Q&A. 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 a rapid fire money Q&A. If you guys have any questions, make sure you join the Master Money.

Starting point is 00:01:45 newsletter by going to mastermuddy.co slash newsletter and you can respond to any of those newsletter issues that come out and ask or question and you may even get your question answered on a show like today don't forget to follow us on spotify apple podcast youtube or whatever your favorite podcast player is and if you're getting value out of the show consider leaving a five-star rating and review on your favorite podcast player now today we're going to be diving into a rapid fire money This is one of my favorite types of Q&As to do. We did it for the first time about a month ago, and you guys loved it. So we're going to try it out again. And on these rapid fire money Q&As, the goal is to try to answer a bunch of your questions in three minutes or less. So we get a ton of

Starting point is 00:02:30 your questions in and we're able to give you the meat of each question. So today we have a bunch of different questions that we're going to be diving into. I don't want to waste any more of your time. Let's get into it. All right. The first question is, is it time to refinance? So, This is a question because the Fed just lowered interest rates recently, if you're listening in the future. And so a lot of people have asked this question, is it time to refinance? And what I'm going to say is it depends. It depends on your current interest rate. And it depends on your current financial goals.

Starting point is 00:02:59 If your current mortgage rates are slightly lower than your existing rate right now and you're planning to stay in your home long enough to recoup the closing costs, refinancing could be a good move. But you've got to do the math when you refinance because those closing costs could eat away at all the pros of of refinancing. So you've got to make sure, hey, are these closing costs higher than the amount of money that I'm going to recoup? Then most likely I wouldn't refinance. But are they something that could make a huge benefit? Then maybe it is time. So say, for example, your interest rate dropped from 7% to 5%. Well, that could be a big difference for a lot of people, that 2% differential. Now, if you think in the future interest rates might drop a little more. Maybe you want to wait one

Starting point is 00:03:40 more cycle before you decide to refinance. But what I would do is start to get all the paperwork together, start to develop a relationship with whichever bank you're going to go with, and then you have everything ready if rates drop. Again, you can start to have those conversations if you want to refinance during that time frame. Now, this could also help to refinance. If you want to switch from like an arm or an adjustable rate mortgage, that would be a great time to refinance because I always want to have a fixed rate on my mortgage typically because it's just more predictable. It helps you understand and what your rate is actually going to be. You don't have to worry about interest rates rising on you over time.

Starting point is 00:04:18 You lock in that rate and it stays with you over the course of 30 years or 15 years or whatever you refinance too. Another reason to refinance would be if you have a 15-year mortgage, you can't handle those payments yet and you want to move to a 30-year mortgage or vice versa if you have a 30-year mortgage and you want to move to a 15-year mortgage to try to get that paid off quicker. Typically, I like to have the 30-year mortgage and then have the discipline. to pay it off in 15 years if that's something I want to do because that allows you for flexibility and you can reduce the obligation of mortgage payments that are significantly higher.

Starting point is 00:04:54 All right. Next question is, is disability insurance important? Yes, for a lot of situations, disability is important, especially, and let me say this loud and clear, especially if your income is the key part to your financial stability. So let me give you this scenario here before I dive into this is when I was in my 20s, my company offered disability insurance. Now, I was making, you know, $30,000 per year. I was living alone in my apartment. I wasn't married yet. And in that scenario, my company offered me disability insurance, but it was a good chunk of my paycheck every single month. So my logic behind this was I actually rejected that disability insurance because I thought, hey, if something happened to me, I could move out of my apartment, my parents were local.

Starting point is 00:05:40 I could move back in with my parents if I absolutely had to and recover from whatever injury I had and then get back to work after that. Now, I would not make that same exact decision if I had people who relied on my income, specifically if I had a spouse or kids who relied on my income, then disability becomes much more important. Here's why. One, it gives you income protection. So it replaces a portion of your income if you're unable to work due to illness or injury. So if something happens to you, let's say, for example, you get sick and you have to have a long period of time where you're in the hospital, then disability insurance will at least cover a portion of your income to create some financial stability. Or, for example, if you work in construction and you're outside of a job and you're playing some sort of sport, maybe you're playing tennis or flag football with your friends or something along those lines and you get injured or you're on out hiking and you fall and you get injured and you can't work for a period of time. Disability insurance is going to cover that income.

Starting point is 00:06:39 It also helps cover long-term issues. So it can also help in cases of extend periods of disability, not just short-term, which I think is really important for a lot of people. And it helps prevent financial strain and peace of mind. Now, if disability insurance is incredibly expensive, is at the end-all, be-all if you do not have disability insurance? No. Disability insurance in my eyes, and we're going to do an episode on this, by the way, but

Starting point is 00:07:02 in my eyes, it is a, it depends insurance, meaning it depends on your financial situation where it's not absolutely necessary to have it, but it is really nice to have when something happens to you. So if you have people who depend on you, I think disability insurance should be a consideration in your financial plan. If you don't have people who depend on you and you have a situation where you are flexible or you could go somewhere if you got hurt and you didn't have to cover rent and all those types of things, then you can reconsider disability insurance as something that you absolutely need. So it's a it depends thing, but it is important for a lot of people. The next one is what are some ways to save money while at college?

Starting point is 00:07:42 So when you're in college, this is the time to develop financial habits that are going to make a major impact on your life. So I'm going to tell you right now, even if you have limited income or hardly any income coming in at all, maybe you have student loans, maybe you have scholarships. No matter what your income situation is, you need to figure out a plan of where those dollars are going to go. So this is where I would have a spending plan in place. And every dollar that came in, I would allocate a plan for where that dollar is going to go. You got to tell your money where to go. And so when your money comes in, make sure you have a written plan of some sort of how you

Starting point is 00:08:19 are going to allocate those dollars. That's the first habit that you should have while you're in college because it's very hard to save money if you do not have a written plan in place. Secondly, I would use as many student discounts as I could if you're trying to save more money while in college where you can get student discounts left and right, depending if you're going to restaurants or if you're just going to go out and buy a laptop, for example. There's a ton of different ways to save money with student discounts. You've got to take advantage of those.

Starting point is 00:08:44 If you can in college, and this is a big thing I did to save money, was I cooked my own meal. So I used to live in college on $50 per week on food. Now, this was over a decade ago. So food costs have gone up more, but develop that plan of what you're going to spend on food every single week because this is a huge cost for most college students and then figure out exactly how you're going to attack that plan. So I would grocery shop with 50 bucks a week. That was my budget that I had.

Starting point is 00:09:08 And it was something where I was eating a lot of chicken and rice, chicken and pasta. There was like a lot of things that I was doing to kind of reduce some of those costs. Now, one big thing that I did in college also is you have to figure out a way to possibly earn some income. Okay. So your study is obviously the most important thing. That's the reason why you're there. But I would work jobs while I was in college. I worked at a sandwich shop for years and would make tips delivering sandwiches to people.

Starting point is 00:09:33 And so that was my in college job. And I spent probably too much time there. And what I did was I would experiment with the amount of hours that I could work. So there were semesters where I would experiment with, hey, can I work 20 hours? And then I was fine at 20 hours and still doing fine in school. Could I work 25, 30 hours? And when I started to creep up past 30 hours, I noticed it was really hard because I was just every second of the day, I was working. So then I started to reduce it back down and found that probably around 20 hours is the most that I could handle per week and make sure that I am on top of my studies. Now, a day's, what I would probably do is try to find some way to make money online or find some way to make money in a flexible way. It is much easier to utilize some flexible hours. Or I would try even to start one of the businesses that we talk about all the time, which are these side hustles that could turn into full-time businesses, because that is a great time to start one of those, is in college, nights and weekends, you can do it outside of your studies. and you can start one of those that may not need your time every single hour of the day. I think that is another great time to start something like that.

Starting point is 00:10:38 But trying to have some income so that you have a way to give yourself some breathing room in college is also very, very helpful. This doesn't mean that you have to work a ton of hours. 10 to 20 hours can give you some additional income so you can actually breathe and not have to stress so much about money. In college, it's just reducing your stress around money and trying to make sure that you get that degree so that you can move on in life and start to earn an income. Your college years are some of the most fun times in your life, so enjoy them while you're doing it.

Starting point is 00:11:03 But at the same time, just make sure you're logical about some of your spending decisions. What should I do with a 403B from a previous job? All right, so you have a couple of options here. Number one is you can leave that 403B account there, you know, invested. It's your prerogative to leave it there if you want to. But what I would do most likely is I like roll over IRAs. And you could roll it over into something like an IRA. And then you can control the investments there.

Starting point is 00:11:27 That is my favorite way to do it. There's a company called Capitalize. They're not sponsor, but there's a company called Capitalize. I'll actually do it for you and they'll actually help you through that process for absolutely free if you wanted to go that route. You could also roll it into a new 401K if you go to a private company or somewhere else that has a 401K. But you just got to make sure that you like the investment options that they have there. So for me, my number one option is always just roll it over into a rollover IRA. That's what I did when I left my corporate job and it's at Vanguard. It's been there ever since.

Starting point is 00:11:57 and I just invest the money in S&P 500 index funds and just kind of roll with it and just been sitting there growing over time. And so that's my favorite thing to do because you've got to consider the fees and the investment options and any other management preferences that you have. And so my favorite thing is just roll it over and do a roll over IRA. Fidelity, Vanguard, both are great places to do that. Or if you have a brokerage that you already have open and you want it to be easy, then go for that as well. Should my first 100K be invested in one account like a Roth IRA? a 401k, etc., to get compound interest. So this is a question that is actually a very common misconception

Starting point is 00:12:33 where people think that if you combine all of your money into one account, it's actually going to grow in compound faster. And it's actually not how compound interest works. You can have it spread across a bunch of different accounts, and it will still grow at the same rate. You do not have to keep it all in one account for it to grow faster. So what I would do is follow something along the lines of the stairway to wealth and automate your money into a bunch of different options.

Starting point is 00:13:00 So I like the HSA, I like the Roth IRA, I like the 401K, and really I like them in that order. And so you can look at those options and start to invest your money across those accounts. Here's an example is, let's say, for example, you have $7,000 per year to invest. Well, a Roth IRA is a great option in that scenario because you can start at a Roth IRA. You can put your money in. It's already been tax. You can grow your money tax-free, and then you can pull the money out tax-free after the age of 59 and a half. And so because of the amount that you have available, I would get,

Starting point is 00:13:31 you know, something like a 401k match, if you have that available, then from there, I would either go to an HSA or a Roth IRA, and then you can go back to your 401K once you max those out. And that's kind of the process that I would think through this, but it doesn't all have to be in one account to compound faster. That's just a common misconception. Compound interest doesn't work that way. You can spread it across different accounts, and you will still get the same result. And spreading it out also helps with flexibility and it also helps you diversify your tax situation depending on where you are in life. How do I get started in real estate when all my money is tied up in savings, retirement, and bills? All right. So this is a great question. There is a book, by the way, that I want you to

Starting point is 00:14:11 read and I recommend it. And it's by Brandon Turner, who has been on this show. And it's called investing in real estate with low to no money down. And he kind of talks through some of the ways that he started in real estate without having to use his own money. Yeah, you know, you. You you can invest in real estate without using your own money. I sound like some sort of TikTok spammy guru when I say that, but it's absolutely true, is you can go out and you can invest in real estate in a number of different ways. One, you can find partners to help you invest in real estate. This is what I did when I had no money is I found money partners and I was the sweat equity partner. And so what my financial partners would do is give me money and they knew I knew how to

Starting point is 00:14:49 run the numbers. They knew how I knew how to find real estate. I proved that to them. And then we would go out and we would buy single family houses and they would reap the benefits of the cash flow from those single family houses and we would split it. So basically they had to do no work. They just put the money up and we would buy these houses and I would find the tenants. I'd put the tenants in the houses. I'd renovate the houses. I would do everything for these properties. And so that's one way you can do it is to find a cash partner. Another way is to do a joint venture with somebody, meaning that each of you puts a, you know, certain amount of money in. Maybe you have a little bit of money and they have a little bit of money. And so you put enough in for the down payment and then you both partner and do a joint venture

Starting point is 00:15:27 on different rental properties. And you could do one at a time. You kind of develop a little business plan together of how you are going to invest in real estate. Maybe you're going to start with single family houses. You're going to take the cash flow, save it up in your business bank account and then you're going to buy more rental properties over time. So there's a bunch of ways to do it that way. A third way is you can go out and get hard money. Now, the way hard money works is to save very high interest rate loans. You have to know what you are doing before you even consider something like this. But if you know what you're doing, you can go out and you can find a property, for example, that may need some renovation. And you can go to a hard money lender, have a conversation with them.

Starting point is 00:16:03 Make sure you find a good one who is not going to try to take advantage in you. And when you go to that hard money lender, you say, hey, I got this property. My goal is to renovate this property, fix it up, increase the value of this property. And then I will then. Then, then. refinance it. And so the way that this is going to work is they would give you the cash for the property. You renovate the property. Typically, you want to try to make sure that they give you enough cash for also the renovations. And so they'll give you the price of the property. They give you the cash for the renovations. You renovate the property. And then you go to a bank and you can refinance it. Once you refinance it, you get your cash back in six to 12 months. And then you pay back the hard money

Starting point is 00:16:43 lender. And now you have a traditional loan on that property. So that's another way that you can do this with no to low money down. And so with all of these different scenarios, these are just some of the different strategies that you can utilize with limited money to invest that will really, really help you going forward, especially if you don't have a ton of money. You can definitely invest in real estate without a ton of money. You can also wholesale deals, which is where you find people who are looking to sell their house off market. And then what you do is once you find someone who wants to sell their house, then you find an investor who wants to buy their house. And then basically you're the middle person who then makes a commission or a chunk of cash depending on what you can get the

Starting point is 00:17:23 buyer to buy that house for. So here's a quick example because I probably didn't make a ton of sense. Let's say you find a seller who wants to sell their house for $100,000 and the house is worth $140,000. Well, you can go find a buyer who is willing to pay $130,000 or $140,000 for that house and you make $30,000 to $40,000 just for being the broker in the middle. This is called wholesaling and it's another way to invest in real estate with low to no money down. So check out that book. It is one of the best books on learning how to invest with low to no money down. You can see all the different strategies and the possibilities that are out there,

Starting point is 00:17:57 but it is definitely possible for you to do that. What happens to my $529 plan money if I want to roll more than $35,000 over to a Roth IRA? So if you don't know, the Secure Act came out and it said that you could roll up to $35,000 into a Roth IRA from your 529 account. There's some rules surrounding that that we won't go into now, but there's a bunch of rules surrounding that to be able to do that. And in any amount, over $35,000 can grow tax-free for education. But if you wanted to pull additional money out,

Starting point is 00:18:28 it is subject to penalties and taxes. So it would be subject to a penalty and a tax for those non-qualified withdrawals. So you just got to make sure that, you know, if you have more than $35,000 that you want to roll over, you're just going to pay the penalties and taxes on that. Now, is that always a bad thing? I mean, it isn't negative that you're paying those penalties and taxes, but sometimes your money is tied up in places that you just want to move over.

Starting point is 00:18:49 So let's say, for example, you have two or three kids and you have a 529 plan, and all three of your kids are just really smart. I have a friend who is like this, a family friend, and all four of their kids were valedictorians. And so they all got full-ride scholarships to amazing schools. So in their scenario, if they had all this money saved up in a 529 plan, all of a sudden now it's tied up and they got taxes and penalties that they have to worry about. And so there's a bunch of different ways that you can finagle this.

Starting point is 00:19:15 You can use the money and travel abroad. For example, she can say, hey, I'm going back to college now. And I'm going to travel abroad and I am going to pay for my room and board for one college class in England for a semester with me and my spouse. And we're in our 60s. And you can travel abroad and use the money that way. There's creative ways to use the money if you don't want to pay the taxes and penalties. But for the most part, if you have more than 35,000, you want to roll it out of that 529.

Starting point is 00:19:39 You're going to have to pay the taxes and penalties. We'll get into some more of those creative ways. And in past episodes, we've already kind of talked about that. So I will link up some of our 529 episodes down below, but that will kind of help you through that process. There are some creative ways, but you just got to kind of know what they are and know their limitations. I remember when I needed to hire someone fast, but finding the right person quickly

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Starting point is 00:23:18 And one is there's just a lack of comprehensive federal privacy law in the U.S. specifically. There really isn't a single comprehensive law that restricts data brokers from collecting and selling personal information. There are things like HIPAA for health care and stuff like that. But outside of that, there's not a ton of things that govern. all types of personal information. And honestly, we need to have more of that if we can. A second reason, though, is because a lot of this is publicly available information. So a lot of the information that data brokers sell, like your name, your address, your phone number, or even some of like your voter registration details, all come from public records. And sometimes

Starting point is 00:23:55 it can come from social media. They pull it from different websites. And so that's why they're able to sell your information because you're already making it public out there. They also can take it from terms of service agreements. So a lot of times when you sign those terms of service agreements when you sign up for something or whatever else you do, it actually states that you are allowing data brokers to collect your information and you unknowingly are signing that typically. And then they buy this data from companies that you interact with online. Another reason is because they also track consumer habits. And so they'll collect things like consumer behavior data, such as shopping habits, browser history, you know, when you allow

Starting point is 00:24:30 cookies, all that kind of stuff. And then they can monetize this data. And then lastly, there is just minimal oversight with regulations. So even in other countries, there's just not a ton of oversight on your data. So data brokers are constantly collecting information and they're selling it to other people. Sometimes they sell it to the wrong people. And so because of this, this is why it is so important to have someone like Delete Me in your corner. I've been using Delete Me for years now. You guys hear me talk about it all the time. And what Delete Me does is they go to these data brokers and they get your personal information removed from those data brokers. This can save you in so many different scenarios.

Starting point is 00:25:08 If someone gets a piece of your personal information, they can look up the rest of your personal information to try to fraudulently steal money from you or take some of your information. And so because of this, Delete Me can help you remove your personal information and it takes a lot of work and they do all the legwork for you. And it's really, really, and expensive.

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Starting point is 00:26:01 off there. Is the 20% savings rule based on gross income or net income? So when we first started this podcast, when I talked about the 20% savings rule, people would ask me this question. And I would say net income because that is what I personally did. And personally, I started at a 20% savings rate with my net income and then I raised it over time. But someone brought to my attention, hey, but this would not count your 401K contributions

Starting point is 00:26:27 as part of your savings towards retirement. And they're absolutely right. because what happens is when you invest in your 401k, this is pre-tax money. So it is not your net income. It is your gross income. So if you're saving a large amount in your 401k, based it on your gross income, that is completely fine to go ahead and do that. So going forward, a lot of times when I say this, I'm going to relay this to my gross income, especially if you're using your 401k, net income is actually going to make you save more. So if you like to have a mind hack and you want to have a forced savings to save more, then do 20% of your income of net. But really, 20% of your gross income is

Starting point is 00:27:05 what we mean here when we say save 20% of your income. Because over time, that is going to be something, especially if you have 401k or pre-tax contributions that still ensures that you're hitting those financial goals. So I think it's really, really important to at least start that 20% savings rate. And again, remember, savings rate means if you're saving for your emergency fund and or if you're putting that money into investments for retirement. Those are the two things that your savings rate is going to matter most. Now, if you're saving for a down payment on a car or down payment on a house, that's a separate thing that we could talk about later. But I'm talking about saving for retirement and protecting your money. That is what that savings rate is for.

Starting point is 00:27:42 And we are basing that on gross income. What is the first thing someone graduating college should do financially? Now, this is a great question. First thing I would do is start to build up that emergency fund by using the 136 method. So you may not have really high expenses right now, but build out that emergency fund one month. Make sure you pay off high interest debt at one month. Then three months. Make sure you are then starting to invest at three months and then go to six months. This works for any financial scenario.

Starting point is 00:28:10 So first, I would follow that one three six method and make sure you have that high interest debt paid off. If you have any sort of credit card debt, somebody duped you into getting a college credit card and you have credit card debt pay that off first. And then from there, then you can go on and start doing everything else. Then I would look at my 401K options. If you started at a new company, do you have a 401. plan. If so, get that 401k match immediately. It is going to be so important to build up that habit right

Starting point is 00:28:34 away and then start to contribute to your Roth IRA, your 401k so that you can grow your money over time. That is going to be a really, really important thing that you can do. Also, establish a spending plan. Start the habit right now. Start it when you begin your working career. And if you start early, you'll be able to make a massive, massive impact on your finances just by tracking some of the key numbers. We just had an episode talking about the six numbers you should track. Start that today. Because if you start that today tracking your net worth, making sure you know what your savings rate is, making sure you understand what your income is and your net and gross income. All of those different things that we talked about in that episode are going to be really, really important. So make sure you

Starting point is 00:29:17 start to track those going forward. Now, since you just graduated, you're likely in your 20s. If you're in your 20s, do not just go overboard on your first apartment that you get right out of college, even if you're making a bunch of money, or if you're not making a bunch of money, don't go overboard an apartment. Don't just start spending way too much in your 20s. It's not worth it. Those dollars are so incredibly valuable. The more dollars that you can invest is going to make a huge, huge impact on your life going forward. And so in my 20s, I lived pretty frugally. And I'm so glad that I did because all those dollars I got to invest and it gave me such a huge head start where a lot of people are now trying to play catch up, you know, in their 30s. Now I'm in my 30s. All my friends are in their 30s.

Starting point is 00:29:58 are trying to play catch up, and a lot of times they have to work so much harder than I did because I started really, really early. So the earlier you start, you can make a massive impact in your finances just by getting those dollars invested early on. So that's some of my quick tips for you on some of the first things that you should do when graduating college is get started in your retirement plans, get started in making sure you have a spending plan in place, and make sure you're tracking the right metrics going forward and just develop those financial happens. The last thing I'll tell you, and this is the number one thing I want you to do, automate your money. Make sure you are automating everything so that you don't have to worry your stress about any of

Starting point is 00:30:37 this stuff. It's all just automated and you don't have to lift a finger every single month. The next one, what are the best credit cards for travel hacking? So if you go to the personal finance podcast.com, we have a little link up top that says credit cards. That is our affiliate link for all our credit cards. So whenever we talk about these, if you use that affiliate link, it really just helps out the show. And I have all these listed up there. But I'll give you you some that I love. I love Capital One Venture and Chase Sapphire. Those are my two favorites to start off for most people. Those are ones that I really like to use. There's also the MX gold or platinum. And if you're a business person, the Chase Inc. is great. The Capital One Spark is great. All the

Starting point is 00:31:12 MX cards are great. Those are some of the best travel hacking credit cards to start with because they have flexible points and you can kind of move those points around and do a lot of different things with them. What are the best high-yield savings accounts to get? Mine's at Ally Bank right now. There's a bunch of different great ones out there. There's betterment. I just look for a high-ield savings count that allows you to budget inside of it. So Ally has these things called savings buckets that allow you to budget inside of it. I know a bunch of other ones do out there as well. SoFi, I think, does that. Betterment. There's Marcus by Goldman Sachs. There's CIT bank. There's a bunch of them out there. Just find one that is really easy for you to use that has savings buckets.

Starting point is 00:31:50 And the reason why you want to have savings buckets, it makes it so much easier for your money automation systems to have those savings buckets. Thank you guys so much for listening to this episode of the Personal Finance Podcast. Again, if you guys have any questions, make sure you reach out to us by going to mastermoney.com slash newsletter and you can respond to any of those newsletters that come out every single week and you may get your question answered on the show. And thank you for investing in yourself because that's exactly what you're doing when you listen to this podcast as you are investing in yourself. If you're getting value to this episode, share this episode with a family member or a friend. Again, thank you so much for listening. You can follow us on any of the social

Starting point is 00:32:28 media's at Master Money Co. And I truly appreciate each and every single one of you. I hope you have a wonderful rest of your week. And we'll see you on the next episode. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Playojo. The online casino with all the latest slot and live casino games. What you win is yours to key with no wagering requirements, instant payouts, and no minimum withdraws. Hey, I just won. Woohoo! Feel the fun!

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The Personal Finance Podcast - Investing Your First $100K, Refinancing, Real Estate Investing and More! - Rapid Fire Money Q&A

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