009 | Housing - Should You Rent Forever?

The guys discuss renting vs buying a house.  Which is superior from a financial standpoint?

Websites mentioned during the podcast:

Headline: They lived paycheck to paycheck before the pandemic. Then their worst nightmare came true.

Renting VS buying a house

When is renting a good thing?

• When you are unsure of your career and could have to move for a career.
  • I.E. Military, people early in their careers
  • Someone who hasn’t yet “settled down.”
• If you’re someone who doesn’t like dealing with maintenance of a property
• If you’re someone who likes having access to a lot of amenities
• If you’re in a market with super high housing costs but low rent price
• If you don’t have adequate savings (emergency fund, retirement, etc..).  It may make sense to wait until you have your financial house in order.  Don’t rush into buying a home as there are expenses that come with it.

Advantages to renting:

• No maintenance costs or repair costs -These can often be ~1% of the cost of the house.  So if you own a 300,000 house, you’re looking at 3,000 in repair costs just to upkeep the property.  Just call up the landlord to get things fixed when they break.  No out of pocket to you
• Insurance costs are lower- you’re not insuring the house- just your belongings.  Renters insurance policies are cheap.
• You don’t “pay” real estate taxes  - all costs are built into your rent payment (exception is utilities).
• Have a better idea for budgeting purposes what it’s going to cost to live somewhere.
• No down payment- with a house - it’s 20%.  With renting - it’s often just a month’s rent which can be a substantial difference.  You don’t need that big down payment
• Flexibility on where you can live.  If you find a better place that’s chearper, you just pick up and move.  Don’t have to pay 6% to realtors to sell your place.

Advantages to buying:

• You have a fixed housing expense for the next 30 years (or however long your mortgage is).  
• No landlord can raise your cost of living there.
• Every single month when you make a payment to the mortgage company, you are building equity in that house.  So not all of that payment is a sunk cost like it is when you rent. It’s a form of forced savings.
• You get to make the house your own and nobody can kick you out.
• Homeowners can take tax deductions on the interest they pay toward the house. They can also take tax deductions for certain energy improvements made to the house.
• If you tire of the house, you can rent it out and possibly turn it into a side hustle.
• Ways people make money when buying:
  • Equity build up
  • House appreciation (3% annually on average)

Main takeaway: Given that the money you’re putting into buying a house often either improves the home and it’s value or equity - it’s generally a better idea to buy rather than rent.  Buying almost always increases your net worth faster than renting (especially in a low interest rate environment).

Hops Showdown:

Scott: Evolution Craft Brewing, Salisbury, MD, Pine'Hop'Le Pineapple IPA, Score: 81 

Lance: Coast Brewing Co., North Charleston, SC, Hop Art IPA, Score: 87

Episode 8: Roth IRA & Compound Interest Deep Dive

On this episode the guys discuss Roth IRA’s and the power of compound interest.  We explore who can invest in a Roth IRA, what are the limits that exist with Roth IRA's and how to use compound interest to help you reach new financial heights.

Websites mentioned during the podcast:

Headline of the week: Social Security Trust Fund Expected To Run Dry Three Years Earlier Than Estimated A Few Months Ago

Link to Investopedia guide on backdoor roth

Roth IRA / Compound Interest Notes:

Roth IRA Contribution limits:

$6,000 per year / $7,000 for 50 and over

Who can invest in a Roth IRA?

Single with Modified Adjusted Gross Income of $139,000 or less in 2020

or

Married file jointly, your MAGI must be under $206,000.

Back Door Roth IRA* - A clever way to get around the income limits

1. Contribute to traditional or non-deductible IRA
   
2. Convert the traditional or non-deductible IRA to a roth
   
3. Will have to pay taxes on any earnings made between the time you contribute to the standard IRA and when you convert.
   
4. Once the money is converted it becomes Roth money and all money within the account is not subject to tax in retirement. (Tax Free!)
   

*We recommend consulting with an accountant prior to doing a backdoor Roth IRA to account for any potential tax consequences.*

What is compound interest?

The interest on your money calculated based on both the initial principal and the accumulated interest from previous periods.

What is the key to compound interest?  Time - So get started!  The longer the money is working for you, the more of an impact it can make in your life.

Illustration of compound interest:

1 time contribution $20,000 - invest it in S&P 500 ETF… assumed 8.5% interest rate

After 10 years: 45k

After 20 years: 102k

After 30 years: 231k

After 35 years: 347k

After 40 years: 522k

Hops Showdown:

Lance:

Sierra Nevada Brewery

Dankful IPA - 92 points

Asheville, NC

Scott:

Flying Dog Brewery

Snake Dog IPA - 87 points

Frederick, MD

Episode 7- The Great Debate

On this episode the guys discuss the pros and cons of paying down lower interest debt over investing for your future.

Websites Mentioned on the podcast:

Headline of the week: Trading activity climbs ahead of presidential election

Compound interest calculator 

https://www.coachcarson.com/blog/

https://www.biggerpockets.com/

The Great Debate: Pay down low interest debt or invest for your future?

Example:  Let’s just say, for argument purposes you have a 500,000 mortgage at 3.25% interest, you just bought the house.  Payment is $2,200 a month (P&I).  You have an extra $1,000 you were thinking of putting toward the mortgage to pay it off early as you hate debt.

If you applied the extra $1,000 toward the mortgage.  You would reduce the mortgage from 30 years down to 17 years. At the end of 17 years, you would own your house and you would have an asset worth $500,000.  Other 13 years, you take the money you were putting toward the mortgage and invest it.  $3,200 invested over 13 years at 8.5% interest = 862,000

End of 30 years: $500,000 house + $862,000 investment account = $1,360,000 in assets

Next example: If you paid as agreed on the mortgage ($2,200) for 30 straight years and took the extra $1,000 you have and applied toward investing in an S&P 500 index fund and it averaged 8.5% per year, you would have $1.5M in your investment account.

End of 30 years: $500,000 house + $1.5M in your brokerage account. = $2,000,000 in assets

You end up with 47% more money if you invest the extra $1k vs paying down the mortgage.  This is because you were borrowing money at 3.5%, but you were investing your money at 8.5% interest/growth.

Hops Showdown:

Lance:  Riverdog Brewing Company (Ridgeland, SC) - Riverdog IPA: 88 Points

Scott:  Heavy Seas Brewery (Halethorpe, MD) - Loose Cannon IPA: 93 Points

Episode 6: Credit Cards - Make 140k with credit cards?

Discussion about credit cards and our thoughts around responsibly using credit cards as part of your financial plan.  We also discuss the dangers and pitfalls that credit cards present.

Websites mentioned during podcast:

Headline of the week: 3 Reasons the stock market will continue to rise no matter who wins the presidential election

Fidelity Rewards Visa Signature Card - Unlimited 2% cash back on all purchases if redeemed for investment savings (Retirement, HSA, Brokerage, 529).  Buy those Fidelity Zero funds! No Annual fee

Citi Double Cash - 2% cash back.  1% as you buy, 1% as you pay.  No Caps, no annual fee

Chase Amazon Rewards Visa -

Non Prime customers:

3% on Amazon and Whole Foods, 2% on restaurants, gas and drug stores, 1% on all other purchases

Prime Customers:

5% on Amazon and Whole Foods, 2% on restaurants, gas and drug stores, 1% on all other purchases

*No Annual Fee

*No Earnings Cap

*No Foreign Transaction fees

Target Red Card

5% off on all Target in store and Online purchases

5% off at Starbucks

An additional 30 days to return items

Free shipping on most online orders

www.creditkarma.com - Track your credit score

www.annualcreditreport.com - Get your free credit report here once per year.

Only 45% of people pay off their cards in full every month

Episode 005 | The Power of Index Funds and The DIY Investor Intro: Discussion about Index fund investing, Why they’re so powerful and which index funds we use for our portfolios.  We discuss what expense ratios are and why they’re so important. Our Favorite Index Funds: Schwab: https://www.schwab.com/etfs/invest-in-etfs SCHB: Schwab U.S. Broad Market ETF  0.03% E/R SCHF: Schwab International Broad Equity ETF  0.06% E/R Target date funds (all 0.08% E/R): https://www.schwab.com/mutual-funds/mutual-fund-portfolio/target-funds (made up of all schwab etf’s that have lower than 0.08% E/R) Vanguard: VTI - Total Stock Market ETF  (tracks total US Stock Market)  0.03% E/R VUG - Vanguard Growth ETF  0.04% E/R VOO - Vanguard S&P 500 ETF    ***Warren Buffet Quote**  0.03% E/R Fidelity: https://www.fidelity.com/mutual-funds/investing-ideas/index-funds?&imm_pid=700000001009773&immid=100611&imm_eid=ep35415530180&imm_pid=700000001009773&immid=100820&imm_eid=ep35415530180&gclid=CjwKCAjw5p_8BRBUEiwAPpJO6207zxjiW6aKkBzfs9uuBDzXZxathprJc9dfBU0hacGHV4RT278QkhoC6bwQAvD_BwE&gclsrc=aw.ds FNILX - Fidelity Zero - Large Cap fund (big companies) FZIPX - Fidelity Zero - Small to Mid-Cap company (small/medium sized businesses) FZROX - Fidelity Zero  - Total Stock market index FZILX- Fidelity Zero - International Broad Market index fund Websites mentioned during the pod: Choose FI - Episode 24 - Index fund investing: https://podcasts.apple.com/us/podcast/019-jl-collins-the-stock-series-part-1/id1187770032?i=1000384464380 Headline of the week: Robinhood Internal Probe Finds Hackers Hit Almost 2,000 Accounts Compound interest calculator used for our example with David and Oscar Hops Showdown: Scott: Brewery: DuClaw Brewing Company, Rosedale, MD Beer: Mad Bishop (Limited Release) Type: German Styled Octoberfest Rich, toasted malt flavor that goes down easy with a crisp, clean finish. Smell lightly sweet caramel, with a very slight tang at the end. Flavorful Oktoberfest with notes of honey, vanilla, sweet malts Score: 92 Lance: Brewery:  Westbrook Brewing, Mount Pleasant, SC Beer:  One Claw Type:  American Pale Ale Comments:  Citra hops, pale, rye, wheat Score: 94

Episode 004 - The Financial Playbook, Part 2

Continuation on our discussion about how we think you should prioritize your finances.

Good framework as you work toward your financial goals and optimize your financial future.

Headline of the week: Less than 11% of people with federal student loans are paying during COVID 19

Dollars and Hops Financial Playbook

Step #1 - Establish and fund an emergency fund: 3-6 months of expenses

Step #2 - Pay off all high interest rate debt

Step #3 - Max out retirement accounts (401k’s & IRA’s)

Step #4 - Save for Children’s 529 (optional)

Step #5 - Build your wealth by investing in brokerage account

Action Step: Evaluate where you’re at in the financial playbook.  Set goals for yourself on where you plan to get to and when.

Hops

Scott:

Brewery: Crooked Hammock Brewery, Lewes (pronounced LEWIS) DE

Beer: Actively Fishing

Type: Summer Pilsner

Score: 91

Lance:  Elysian Brewing, Seattle, WA

Brewery:  Elysian Brewing, Seattle, WA

Beer:  The Great Pumpkin

Type:  Imperial Pumpkin Ale

Score: 90

Episode 003:

Dollars and Hops - The Financial Playbook, Part 1

• The guys discuss how we all ought to prioritize our finances - beyond living and giving, what do we do with any extra money?
• The Dollars and Hops Financial Playbook is a good framework to answer this question as you work toward your financial goals.
  

Headline of the week:Near-Zero Interest rates may be needed for up 3 years, says Dallas Fed’s Robert Kaplan

Key Takeaways:

• Low rates have two major impacts:
  • Low savings rates for savers.  Anyone with money in online savings accounts is going to earn very poor interest rates.
  • Low interest rates for borrowers
    • If you were thinking of buying a home - interest rates are at all time lows. 30 yr fixed - 3%, 20 yr fixed at 2.875, 15 yr fixed at 2.375%
      • If you haven’t refinanced your home, you may want to consider doing so now.  This came make a big difference in your monthly budget.

Introduction to the Dollars and Hops Financial Playbook

Steps discussed on this episode:

1. Emergency Fund of 3-6 months of expenses

2. Pay off all high interest debt

Websites mentioned during the podcast:

https://www.bankrate.com/ - Great website to shop online savings rates

Action Step: Do you have an emergency fund?  If not, think about funding one.  Have you looked at your debt and decided how you’re going to tackle it? Consider using the debt avalanche or snowball to pay down your high interest debt as quickly as possible.

Hops Showdown

Scott:

Brewery: Evolution Craft Brewing, Salisbury, MD

Beer: Jacques Au Lantern Pumpkin Ale

Type: Pumpkin Ale

Score: 88

Lance:

Brewery: Elysian Brewing, Seattle, WA

Beer: Night Owl Pumpkin Ale

Type:  Pumpkin Ale

Score:    92

Episode #002: The Dreaded and Beloved Monthly Budget Scott and Lance dive into some headlines, explore the topic of monthly budgeting and why it is important, and answer some listener questions. Content: What is a budget? Why is it important?  How should we budget and track our budget? Headline of the week: https://www.google.com/amp/s/www.cnbc.com/amp/2020/05/29/us-savings-rate-hits-record-33percent-as-coronavirus-causes-americans-to-stockpile-cash-curb-spending.html Hops Showdown:  Holy City Brewing (North Charleston, SC) takes on Inverness Brewery (Monkton, MD) Free tools to help you manage your budget: Free Dollars and Hops Google Spreadsheet Template to budget and track your monthly expenses:  https://docs.google.com/spreadsheets/d/13DrY7fq9jlQ5k1hMItNK97P0LGR5YjOaXLERjKpXaBA/edit?usp=sharing Instructions for using free monthly budget spreadsheet: (Must have a google account) Click the link above - it will open the monthly budget spreadsheet Click the top left corner of the spreadsheet (to the left of column A and above Row 1) to select all.  Hold down control and press “C” to copy to clipboard Open a new google sheet from your personal account. Sign into gmail account Click google apps button in the top right hand corner, select drive Select New in the top left, select sheet While in the new spreadsheet, click cell A1 and hold down control and press “V.” The budget spreadsheet (and all of it’s formulas) will now be in your own spreadsheet. Be sure to rename the spreadsheet so it’s easily identifiable. Edit the sheet to include your personal budget items and use it to identify areas you can improve upon. Track your budget on a monthly basis to ensure spending is under control.  End goal: drop as much money as possible to the bottom (leftover) to save and/or invest at the end of the month. Other free tools discussed for tracking your monthly budget: www.mint.com www.personalcapital.com Paid tools for tracking your monthly budget: https://www.youneedabudget.com/ https://debitandcredit.app/ (In app purchases) Action Step: Do you have a budget?  If not, use one of our recommended tools to create a household budget and track your expenses for a month, or 2, or even 3 to get an idea of how much you spend in each of your categories. The act of budgeting is a crucial step to helping reduce debt and increase savings, ultimately allowing you to optimize your financial future. Want your question answered on the podcast? Email us at [email protected]

Episode #001:

First ever episode!  Lance and Scott introduce themselves and cast a vision for the podcast: help coach, motivate, and provide financial education to help others achieve financial success.

Hops (Craft Beer):

Lance:

Brewery: Edmunds Oast Brewery, Charleston, SC

Beer: The Dark Stuff  (Oatmeal Stout)

Scott:

Brewery: Slate Brewery, Whiteford, MD

Beer: Hawaiian Dream (Blonde Ale)

Content/Discussion:

What is Net Worth and why net worth?

Why you should track your net worth monthly/quarterly?

Using a google sheet and our net worth calculator to calculate your household net worth. (link below).

Action Step:

Do you know your net worth?

Calculate and track your net worth using our free tool - Net Worth Calculator

Useful Links mentioned on the podcast:

Net worth Calculator: https://docs.google.com/spreadsheets/d/1Hmdbc16iXlGp-_1LBkvsVgUMxZE5r38scNE-tL4edeA/edit

Instructions for use: (Must have a google account)

1. Click the link - it will open the net worth calculator in view only
   
2. Click the top left corner of the spreadsheet (to the left of column A and above Row 1) to select all.  Hold down control and press “C” to copy to clipboard
   
3. Open a new google sheet from your personal account.
   
   1. Sign into gmail account
      
   2. Click google apps button in the top right hand corner, select drive
      
   3. Select New in the top left, select sheet
      
4. While in the new spreadsheet, click cell A1 and hold down control and press “V.”
   
5. The net worth calculator (and all formulas) will now be in your own spreadsheet. Be sure to rename the spreadsheet so it’s easily identifiable and save it in your personal finance folder.
   
6. Edit the sheet to include your personal assets/liabilities to calculate your household net worth.
   
7. Track your net worth each month (we recommend setting a recurring reminder in your calendar on the last day of each month).
   

How to Money podcast link (referenced in the show):

https://podcasts.apple.com/us/podcast/how-to-money/id1337718773

Want your question answered on the podcast?  Email us at [email protected]

Please feel free to leave us a rating and review on apple podcasts