Dollars and Hops

Debating Dave Ramsey

Headline of the week: Treasury Secretary Janet Yellen to discuss stablecoins with regulators next week

Dave Ramsey discussion -

• This isn’t us trashing Dave Ramsey
• Dave has helped LITERALLY MILLIONS of people get out of debt
• His teachings have helped people get control of their finances
• Lance and I both enjoy listening to Dave on occasion, Lance actually loves Dave Ramsey and his podcast.
• Hard to say anything bad about Dave…. But there are some things that Dave teaches that we question from a math perspective 

Math vs. Psychology - Dave is a big believer in psychology over math when it comes to personal finance.  There are things that we will mention later where we will say - well this is a better use of the money…. But that takes discipline….  Dave tends to think people have poor discipline, and also tends to measure risk very differently.

Dave Ramsey discussion: His primary principles broken into baby steps:

1. Save $1,000 in an emergency fund

     -Why not more-  what if you lose your job? 3-6 mo emergency fund seems like a more safe plan.  $1,000 doesn’t even cover a month's worth of expenses for most people.

    2.  Pay off all debt besides the house

    -What about low interest car debt?  What about low interest rate debt in general?  Things with below 4-5% interest seem like they should take a back seat to the rest of this….

    3.  Save 3-6 Months of expenses in an emergency fund.

    4.  Save 15% of your income for retirement.

     -Doesn’t specify where to save, how to save, etc…

     -Is 15% enough to meet your goals?

    5. Save for college for your children

    6. Pay off home early

   -Would recommend never paying off low interest debt like a home early.  Would much rather see you invest the money you would put toward the extra principle payments on the house.  This can DRAMATICALLY increase your net worth faster and more significantly than paying toward low interest debt.

  7. Build wealth and give

Dave-isms

• Dave hates credit cards
  • Says you should never use them
    • We like using credit cards as a payment system.  Take advantage of 2% in rewards on ALL spending.  Can even use this as an investment mechanism - Fidelity VISA has 2% cash back to a fidelity investment account.  No brainer
    • Credit cards are a powerful tool everyone should take advantage of
• Dave hates debt on investment properties
  • Dave once went broke - he over leveraged himself on mortgage debt and when the cycle went south he ended up having to file for bankruptcy.  This happened back in 1988 when he was 28 years old.
  • Dave believes you should never buy rental property when taking a loan.  He thinks you should pay for it, cash.
  • Dave was using some risky loan types to finance his loans - they were not 30 year fixed rate loans where the payment remains constant over 30 years.
  • If you can find a property that cash flows well - in a good area with a great renter pool, real estate can be a powerful way to grow your net worth - even faster than stock market investing - if you have the time to dedicate to it.

Headline of the week: Robinhood: The $30 Billion Dollar Cockroach of Fintech 

Steps to the home buying process:

1. Are you sure you need to buy a home in the first place?

• Things to consider: Will you be able to stay in the home for 5-7 years minimum?
• Is your job stable or do you feel like you could possibly move companies/locations in short order?
• Are you married or single?  If you’re married, it may make more sense to buy as there is someone else tying you down a bit to a single location.

    2. Determine how much house you want to afford.

• Notice we didn’t say how much house you CAN afford
• The lender will pre-approve you for a loan of up 30% of your income.
• We believe it’s a better idea for you to work up a budget and determine how much you’re comfortable paying on a  monthly basis to back into the amount of home you can afford.

    3. Save up 20% to put down on the home / Get credit score above 750

• Down payment money:  We recommend 20% so you can avoid PMI.  Save this money in an online savings account (Ally etc..)
• Use credit karma.com to look at your credit score and see where it’s at.  Get your credit score over 750 ASAP to qualify for the best possible rate on a loan.
• If you have a low credit score - pull all three copies of your credit report for free from annualcreditreport.com - find out what’s causing you issues and if the items they’re reporting are incorrect- dispute them with the credit bureau.

    4. Get pre-approved for your loan

• We recommend going to multiple credit unions - applying for a 30 year fixed rate loan for the amount of money that fits into your budget.
• You can apply for as many home loans as you want during a 14 day period and it only counts as one inquiry on your credit profile.
• Don’t make any purchases once you’re pre-approved as it could hurt your ability to close on the loan.

    5. Start looking at homes online / drive neighborhoods to see which ones you like.

• Great tools for this include Zillow, Redfin, Realtor.com
• Start identifying the neighborhoods you want to be in.
• Use a tool like Zillow to identify recently sold listings to get an idea of comps and how much you can expect to spend.

    6. Hire a real estate agent

• Recommend finding a local expert. When driving through neighborhoods - see who’s selling a lot of the houses.  Develop a small list of realtors that do business in the neighborhoods you’re looking in.

    7. Put in a contract on the home you want to purchase.

• Use your real estate agent to help you negotiate the best possible offer.
• This is where real estate agents should be able to earn their commission - use their expertise of the neighborhood to help you get the best deal.

    8. Lock in your interest rate with the lender

• They may ask you to pay points for a better rate.
• In general - it’s best to not pay any points - take the lowest rate with no points.

    9. Hire a home inspector / Get an appraisal

    10. Lock in home insurance & Close the deal

Headline of the week:

Are you a millionaire next door?

Story from the Atlanta Journal Constitution - Wes Moss

• This is an article about what the typical millionaire family actually lives like by studying the book “Millionaire next door”
  
• You may be thinking millionaires drive around in porsche/Bentleys, BMW’s, order dinner out every night, but it’s actually quite the opposite.
  
• The average millionaire didn’t inherit their millions, they worked for it and came up in the low/middle class lifestyle.
  
• Millionaires likely:
  
  • Have a college degree
    
  • 50% of millionaires own a business
    
  • Still in their first marriage
    
  • Millionaires save on average 25% of their income
    
  • Hold at least half of their investable assets in stocks/mutual funds/etfs
    
  • Millionaires budget and live below their means
    
  • Millionaires keep track of where their money goes
    
• Takeaway: The habits of a millionaire are not based upon how much money they make, its how much money they SAVE.
  

Delaying gratification - Forgoing SOMETHING now - for a future reward (often far better).

• Powerful tool in life to learn EARLY to teach yourself impulse control.
  
• As children we are hardwired to have instant gratification.
  
  • As we get older we’re able to rationalize risk vs reward and the value of delaying gratification.
    

Are we born with the ability to delay gratification? Most likely not.  Start small - maybe if you eat lunch out 4 times during the week, cut it back to 3 - invest the difference.  Here are some tips:

• Tip No.1 –  Focus on your goals. Reminding yourself of the goals you are saving for is a great way to improve your willpower. By visualizing achieving your goals, you will find it easier to stick to saving.
  
• Tip No.2 –  Surround yourself with people with willpower. As social animals, we are heavily affected by others around us. If you hang out with people with poor self-control, you are setting a low bar for yourself. On the other hand, if you surround yourself with people who are also working towards bigger goals, you will find it easier to say no to temptations.
  
• Tip No.3 –  Research shows that healthy eating, sufficient sleep, and exercise can improve your ability to delay gratification.
  

What does our culture say about delayed gratification?

We have a culture built on instant gratification and debt, AKA, buy/experience now - pay later. 

Instant gratification - instant everything - the opposite of delayed gratification.

Delayed Gratification and everyday purchases:

Assuming you’re retiring at 65.  Average rate of return is 10%

Every $1 you forgo becomes this much at 65 years old:

20 year old: $1 becomes $72

25 year old: $1 becomes $45

30 year old: $1 becomes $28

35 year old: $1 becomes $17

40 year old: $1 becomes $11

45 year old: $1 becomes $7

Headline of the week: The time is now for action on social security

Credit Freeze

• The best way to protect your financial information from criminals.  It 100% prevents others from accessing your credit information.  It also 100% locks down anyone from opening credit in your name.
  
• A credit freeze has to be implemented with each of the three credit bureaus (Transunion, Equifax, and Experian).
  
• The credit freeze is governed by the federal government and the three credit bureaus have to allow for this procedure under federal law
  

How it works

• You go to each of the three credit bureaus websites and request a freeze.  The process usually takes about 5 minutes or so to set up with each Bureau.
  
• Once all three bureaus are frozen, you no longer have to worry about someone opening credit in your name.
  
• PIN/CODE: Some of the bureaus may assign a PIN number or a Code to be able to thaw your file.  PLEASE PLEASE PLEASE make sure to save this PIN number somewhere safe - I even recommend saving in your email archives somewhere so you can access it if you’re not at home.
  
• When YOU want to get a loan or be able to have someone pull your credit for a legitimate reason - the bank or lender WILL NOT be able to access your credit profile until you temporarily thaw your credit report.
  
  • I typically ask the lender which bureau they use, and then just go thaw that credit report at the bureau's website
    
• To Thaw: similar process to doing a freeze, just go to the credit bureau website, fill in the information they have requested and/or login to your account and tell the credit bureau how long you want your file to be thawed.
  
• The credit freeze and thaw process is pretty much immediate.  Typically takes effect within about 5 minutes.
  

What to do BEFORE you freeze your credit

• Sign up for a free credit monitoring service like Credit Karma or Credit Sesame.  These two companies will send you notifications when a new credit account is opened or if there is any suspicious activity.
  
• Both companies will send you credit card offers through their website or by email.  You can opt out of this stuff, but this is how they make money.
  

Process for freezing credit

Each Credit Bureau has a dedicated page on their website that will help you with credit freeze and thawing

• Experian: Once at their website, select “Add Security Freeze”
  
• Transunion : Once at their website - select “Add a freeze”
  
• Equifax: Once at their website - select “Place a freeze”
  
• *Please remember to save your code/PIN if they provide one.
  

Intro: On today’s show we’re going to be talking about HSA’s and how they can be used as a useful tool in your financial planning picture.  We will also be talking about what we call the HSA HACK for early retirement or to supplement your retirement income.

Headline of the week:

Inflation speeds up in April as consumer prices leap 4.2%, fastest since 2008 - CNBC

• The Consumer Price Index rise for April from a year earlier was the sharpest since September 2008.
  
• Economists surveyed by Dow Jones had been looking for an increase of 3.6%.

What does this mean for us:

• A result is that goods/services are going to cost more.
  
• What can you do to protect yourself against inflation?  Stay invested!  Stocks provide a shelter in an inflationary environment.  

Main Topic

In this episode we’re going to be doing a deep dive on HSA’s.  What are they, what are some of the tricks that make this a really useful retirement tool…

What is an HSA?

An HSA is a health savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses.

• Think of it as a bucket of money that’s there to pay for anything from a medical standpoint.  Instead of paying out of pocket for anything your health insurance plan doesn’t cover, you can utilize the HSA account to do so.
  
• If you don’t use the money in a given year, it runs over into the next year AND stays with you if you change up employers or take a new job.
  

History of the HSA

• Enacted back in 2003 and were spun out of the Medicare Prescription Drug, Improvement, and Modernization Act.
  
• Put in place to help consumers start thinking more about their medical costs - goes hand in hand with the HDDP (High Deductible Health Plan)
  
  • If consumers have to pay the first few thousand dollars in health care costs, they’re going to think twice about what they need and where they get care - is the thinking.

Link to qualified medical expenses / BIG list: https://www.hsabank.com/hsabank/learning-center/irs-qualified-medical-expenses

How much can you contribute to an HSA account?

• In 2021 - you can contribute $3,600 for employee only and $7,200 for a family insurance policy.

Investing inside of an HSA

• HSA’s allow you to INVEST inside of them.  They can be used like a brokerage account or 401k or Roth IRA.
  
• Just like a 401k at work - they have investment options you can choose inside of an HSA.
  

We obviously recommend choosing a fund with LOW FEES that is broadly diversified, like an S&P 500 fund or a broad market mutual fund or ETF.

Reimbursement

• You are permitted to reimburse yourself for qualified medical expenses from an HSA account as long as the expenses are incurred after the HSA was established.
• NO TIME LIMIT ON REIMBURSEMENT, but you must retain documentation/receipts
• Use the HSA as a retirement tool, and reimburse yourself in the future tax free

On this episode we discuss what a bear market is, if we think a bear market is coming, and what you need to do to prepare for the next bear market.

Headline of the week:  Robinhood trader may face $800,000 tax bill

A bear market is when a stock market index experiences a decline in prices of at least 20%.  As we know from previous episodes, an index is basically just a bunch of stocks that make up a broad range of the American economy (think s&p 500).

Understanding Bear Markets:

• Stock prices are made up of cash flow, future expectations, and profits from companies.
• As growth decreases - expectations tend to go down on future returns, thus decrease stock prices.
• Typical causes for growth to be expected to decrease is when we have high unemployment, lower disposable income, decreased productivity, which leads to a decrease in business’ profits.

Studying prior bear markets:

• The last bear market was in March of 2020 - when we first were locked down due to Coronavirus.  In March of 2020, the S&P 500 was down 26.9% from its highs earlier in the month, the DOW was down more than 22%, and the NASDAQ was down over 26% in just a single month.
• 2007-2009 - great recession - led by the housing bubble - S&P 500 was down 50.9% from it’s highs
• 2000-2002 - Dot Com bubble - S&P 500 tumbled by 44.7% over the course of 2 years
• Great depression - 1929 - S&P 500 down 83.4% at it’s lows.   The bear market lasted almost 3 full years.

Important notes from bear markets:

• Stock market declines can often happen before a recession gets underway.
• Typically the bear markets are short lived - most of the time if you look 2, 3, or 4 years out, you’re generally approaching all time highs

What should we take away from bear markets:

• Stocks will recover
• Use it as an opportunity to BUY - buy low, sell high
• If you are lucky enough to still be employed - stay the course - tune out the noise
• “This too shall pass”

Do we think a bear market could happen today?

• It’s certainly possible - but nobody really knows.
• Average price/earnings ratio in the stock market is generally in the 18-19 range.
• What this means: stocks are trading (their value) is roughly 18 to 19 times what they’re earning in a given year.  So if a company is earning 1 billion in profit.  The company value is about 18 to 19 billion dollars.
• Currently - the P/E ratio of the S&P 500 is about 41.  Obviously, history shows us that stocks - from a historical context are overvalued.
• Does that mean you should sell?  NO - at the end of the day, we could have said stocks were overvalued at 20 times earnings, 25 times earnings, 30x earnings - yet - here we are at 40x earnings  - you would have a missed a huge bull run had you sold.

On this episode we do a deep dive on how much you should be saving for retirement. We’ve even built out a google spreadsheet for our listeners that will allow you to plug in your exact situation right now to figure out how much you will need.

Headline of the week:

Bitcoin IRA: Clients Invested over $100M into interest earning program in just 30 days. 

The problem with the general rules of thumb for retirement savings:

• They don’t take into account the amount of time left until you retire.
  
  • Someone who doesn’t start saving for retirement until they’re 50 is going to have to save a heck of a lot more per pay period than someone who starts saving at 25
    
• They don’t take into account how your personal situation and what you want your retirement to look like.
  

Factors that determine how much you need to save for retirement:

1. When (ideally) do you want to be able to retire?  An actual date.
   
2. What do you want your lifestyle to look like in retirement?
   

Ultimately need to know 3 things:

1. When will you retire
   
2. How much will you need in your first year of retirement?
   
3. How much do you currently have saved for retirement?
   

Once we have those three things, we can reverse engineer exactly how much it will take to be able to comfortably retire on your timeline.

We have built out a calculator that you can use to see if you’re on track for retirement.

LINK TO FREEDOM QUOTIENT CALCULATOR

On this calculator you can enter:

• Value of your current investment portfolio
  
• Expected retirement date
  
• How much you want to be able to spend in retirement (year 1 - in today’s dollars)
  
• And How much you contribute on an annual basis
  

Based on these inputs - it will calculate a future value of your retirement savings

You can then compare what the future value of your investments will be to how much it says you will need to be able to retire.

This episode we have a discussion with an EXPERT when it comes to tax law and everything you need to know about the IRS and how to reduce what you pay in taxes to Uncle Sam - all Legally of course!

Headline of the week: The IRS wants to know all about your Bitcoin holdings — and this court summons is a reminder

**Not official legal or tax advice, this is for entertainment purposes only - please contact your own CPA for legal/tax advice that’s specific to your situation** These are simply ideas and questions to get you thinking about your personal situation.

Topics we discussed:

• Stimulus
  
  • Who qualifies
    
  • 150/160 (married filing jointly) for 2021 (stimulus) and additional refundable child tax credits
    
  • What does it mean for tax credits to be refundable?
    
• Change in leadership - new laws regarding taxes - what are some of the biggest changes?
  
  • Changes to the child tax credit
    
  • Changes to child and dependent care credit
    
  • Unemployment income changes
    
  • Student loan forgiveness changes
    
• How to reduce MAGI for tax purposes - (Traditional 401k, HSA, etc..)
  
  • Traditional IRA
    
  • Traditional 401K
    
  • HSA account
    
• Biggest mistakes people make when it comes to filing their taxes
  
• 2020 versus 2021 - Other major changes
  

On this podcast we do a deep dive on what is the S&P 500 and how it works.

Headline of the week: IRS postpones April 15 U.S. tax deadline to May 17

What is the S&P 500? A weighted market index that measures the stock performance of the 500 largest US companies on the stock exchanges within the United States.  The S&P 500 also includes EVERY component of the Dow Jones Industrial Average (which is made up of 30 companies).

Why “weighted” - The larger the company, the more of a percentage that they make up of the index.  For example - the 10 largest companies make up 27.5% of the market capitalization of the index.  The 10 largest cap companies within the S&P are currently: Apple, Microsoft, Amazon, Facebook, Alphabet (google), Tesla, Berkshire (Buffet), JP Morgan, and J&J.

• The smaller the company, the less they make up in market capitalization of the index.

Strict selection criteria when determining which companies make up the index

Why does investing S&P 500 make sense

https://www.slickcharts.com/sp500

Some argue that you don’t need international in your portfolio if you purchase the S&P 500-  This is because of the companies in the index - only 72% of their revenue is actually from the united states, the rest of their revenue comes from international sales.

Sectors that make up the S&P 500:

• IT: 27.5%
  
• Health Care: 14.6%
  
• Consumer Discretionary: 10.8%
  
• Communication Services: 10.8%
  
• Financials: 10.1%
  
• Industrials: 8%
  
• Consumer Staples: 7%
  
• Real Estate: 3%
  
• Utilities: 3%
  
• Materials: 3%

Return of the S&P 500 - Average annual compound growth rate of the S&P 500 index since 1926, including dividends, has been 9.8% and 6% after inflation.

How to buy into the S&P 500?

• Best way to buy into the S&P - by buying a mutual fund that tracks the S&P500
  
  • Mutual funds: If you’re buying a mutual fund you take a set amount of money - put that into your order screen and at the end of the trading day, you will get as many shares of that mutual fund as that money buys.
    
    • Favorite S&P 500 mutual funds:
      
    • Fidelity 500 - Index fund: FXAIX: 138.00 per share, expense ratio of .015% … minimum investment of $0
      
    • Schwab S&P 500 index fund: SWPPX: 60.87 per share, expense ratio of .02% … minimum investment of $0
      
    • Vanguard 500 index fund investor shares: VFINX: 367.39…. Minimum investment of $3,000
      
    • VOO - Vanguard ETF
      
  • Key takeaway: YOU TOO CAN INVEST IN THE S&P 500 FOR AS LOW AS 60.87 with Charles Schwab with NO MINIMUM and super low fees.
    

In this episode we are going to be doing a deep dive on insurance.  What insurance you need, why you need it, and how to best protect yourself, your family, and the assets you own.

Headline of the week:

More than 1 in 3 cryptocurrency investors know little to nothing about it, survey finds.

Websites mentioned during the podcast:

https://www.policygenius.com/

Insurance Overview

What’s the point of having insurance in the first place?  It’s to protect your nest egg.  Protect the assets you own from various things happening.  You don’t want to over insure, but you do want to ensure you have coverage for things that have at least a decent probability of happening.

Types of insurance we like:

Auto Insurance: This is obviously the law that you have to have this, but it’s also just smart to have.  The average insurance claim is nearly 5,000… and nobody wants to have to come out of pocket with that type of money in the event of an accident.

Homeowners and Renters Insurance -  Normally flood and earthquake insurance is not included as part of a homeowners/renters policy - so make sure to ask about it.

Health Insurance - Save $ by doing a high deductible health plan and a Health Savings Account (where you can invest the money in your HSA)

Long Term Disability Insurance: According to the Social Security Administration, just over one in four of today’s 20-year-olds will become disabled before reaching age 67. A 35-year-old has a 50 percent chance of becoming disabled for a 90-day period or longer before age 65. About 30 percent of Americans ages 35-65 will suffer a disability lasting at least 90 days during their working careers. About one in seven people ages 35-65 can expect to become disabled for five years or longer.

Term Life Insurance: If you have someone who DEPENDS on your income - consider getting term life insurance.  It’s very cheap if you’re in good health.  If you have an increasing net worth year over year (not living paycheck to paycheck).... Consider that when purchasing . You may not need a 30 year policy.

Long Term Care insurance: This protects your retirement savings from the expenses of long term care (assisted living/nursing home care).  This really is the number one threat to your retirement nest egg that you may have built up over the years. Try to purchase long term care insurance in your late 50’s early 60’s.

Umbrella Insurance: Extra layer of insurance - usually for high net worth individuals (500k +) that provides an extra layer of insurance on top of your home/auto policies.  Can help if you’re in a multiple vehicle accident and are at fault, medical bills, property damage, etc.  It kicks in if you get sued for more than one of your insurance policies covers.  It’s also VERY cheap insurance (usually just a couple hundred dollars per year for the first million in coverage).  Coverage is sold by the millions.

Things you don’t need insurance on:

Rental Car Insurance (often covered by your primary policy or credit card you book with)

Private Mortgage Insurance

Extended Warranties on cars, appliances and electronics

Life Insurance for Children

Universal Life

Whole life insurance