We talk about why it’s important to save for the future, how to get started saving your money, and what financial products are available to make your money work for you.
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Do you complete the check out every time someone talks to you about saving for the future well then you better stop listening right now because in this episode we will talk about everything investing and retirement.
Hi my name is Danielle.
And my name is Daniel.
And you're listening to the happily unmarried podcast a podcast about adulting and living room.
And this episode we will talk about why it's important to save for the future how to get started saving your money and what Financial products are available to make your money work for you.0:00:25–0:00:34
Today we're going to talk a lot about the finances investing different Financial products such as ISO since when are financial advisors are CPAs we have to tell you,0:00:34–0:00:41
this is not Financial advice this podcast beautiful to tame and purple says if you're looking for financial tax advice seek out a professional.
With that said let's get straight to it why should you even want to save.
I think there's a couple reasons why you want or need to save money so the wonderful time and we all know that the wrong Social Security is kind of like a lost cause.0:00:57–0:01:04
And something that we also have a shared savings account we talked about this in our family finances episode is for.0:01:04–0:01:12
Big Ticket items so if we need to buy furniture or. New car I guess.
Vacation stuff like that stuff that you know will come up at some point throughout your life and it's usually too expensive to just pay out of pocket from the money that you get on a monthly basis or bi-weekly basis whatever his schedule is.
And then I think another really important reason to save money is emergencies,0:01:32–0:01:45
sometimes large expenses come up or a loss of income so you know maybe you need to get a ton of repairs done on your car or you lose your job0:01:45–0:01:52
but they say between 3 to 6 months of your expenses saved for an emergency savings.
Sing expensive means everything that you need to pay to keep yourself alive so that includes rent that include utilities food that kind of stuff and then one thing that I'm a big fan off.0:02:07–0:02:16
Is saving not to spend that money but for the sake of investing at and then reaping the return on that investment.
So making your money work for you.
Yes basically and there's this whole Community around what is called Financial Independence basically the idea is that you say so much money that the returns,0:02:29–0:02:36
of that investment alone are sufficient to sustain your life so you basically don't have to work for income anymore,0:02:36–0:02:46
you can just live off the money that you save without actually spending any of your savings just the interests and returns of that investment able to sustain your life.0:02:46–0:02:48
You need a lot of money fast for the.0:02:49–0:02:58
But it's it's like this idea on a people kind of like a man that talked about it and a striving for it the last one that is important understand is you want to start saving,0:02:58–0:03:04
as early as possible ideally your first paycheck you want to put that in an investment account,0:03:04–0:03:19
the reason for this is that overtime you're saving to investment will grow to visualize what that means is an 8% return of investment which is a reasonable number if we're talking about investing in an index fund in the stock market,0:03:19–0:03:30
if you invest $1,000 so you can expect that money over 30 years at an 8% return of investment to grow to $10,000 at ten fold that's amazing that's crazy,0:03:30–0:03:36
just think about this you put $1,000 into an investment account when you're 20 and when you 50 you pull $10,000 out of it.
That being said not all of us are 20 anymore and if you didn't start saving when your 20 that's okay you still have time0:03:46–0:03:56
I didn't significantly start saving for my retirement until I was Thirty which is why we're going to going to go over what those options are because if even if you feel like0:03:56–0:03:59
you've already missed the boat it's not too late and you should start now.
Did you know that you can listen to this podcast on YouTube iTunes Spotify Google Play Music and even on all Westside just search for happily unmarried podcast and don't forget to subscribe.0:04:09–0:04:16
So one thing that people struggle when we talked about setting on the is how to square that with.0:04:16–0:04:30
That they might already have and most of us have one form or another of that so should you be paying off your debt First Source to be saving your money first and what rules can you apply to make that decision.
I think we're in agreement that the first rule should be before you start saving that you pay off your high interest.
So what what is high interest.
Your credit card debt we're not looking when I pay my student loan debt student loan is at a very low interest rate typically least mine was hope it still is but credit card debt can be upwards of 10% or higher.
Nikes v2020 to 26% when looking at the women 28% return of investment in an investment account and an index fund in the stock market.0:05:04–0:05:16
If you can make 8% return of investment and have a loan Cost You Less at 2 or 3% really low interest rate of this day but I just assumed that then.0:05:16–0:05:31
Paying off that loan first doesn't really make sense compared to investing your money into the stock market you can what you can do is you can use that known as a leverage you basically get money if you wouldn't have otherwise to invest in the stock market,0:05:31–0:05:41
obviously there's stress with that right there's no guarantee that you will get an 8% return of investment but there's a guarantee that you will have to pay you interest.0:05:41–0:05:49
And there's another interesting tidbit here especially if we're talking about a mortgage if the loan that you have is a mortgage then,0:05:49–0:06:00
typically you can deduct your mortgage interest from your taxes the actual amount of mortgage interest if you pay will be lower than that number because you save on taxes and then and then.0:06:00–0:06:07
Another interesting thing when talking about death and saving money is principal payment,0:06:07–0:06:13
that is the amount of money that you pay towards loan that reduces your loan balance versus stress interest0:06:13–0:06:26
you can think of that as saving effectively what you're doing is your you putting money someone into an account the fact that this account happens to be at a negative balance right now isn't really relevant for0:06:26–0:06:29
thinking about this ride when you put it on,0:06:29–0:06:36
a balance sheet it will still increasing violence but principal payment increases your net worth.
All right now that we have talked about the reasons why you should save money let's jump into the different types of savings options that you have starting one with the coldest way to save money which is in your mattress mattress money money that you hide in a Cupboard0:06:50–0:06:53
in case of the apocalypse which.
I'm sure it'll be a lot of years and years.
It is easily accessible you know where to find it you can get it quickly0:07:00–0:07:12
but it can also be lost I have a friend who had a neighbor who passed away and when they went through his home to clean up clean it out and get it ready to be sold they found.0:07:12–0:07:18
Bundles and bundles and bundles of cash everywhere.
Was that the Breaking Bad Guy.
No I like in the basement like some of the cash was ruined like it wasn't it I got there was like a flood it is so0:07:26–0:07:30
you can lose it it can get ruined it can get stolen yeso,0:07:30–0:07:36
that's definitely a risk and then obviously you're not making money off of this money there's no interest here there's no return of the.
And in fact inflation roll just like either way out of the all the time.
The second type of savings would be your standard.0:07:46–0:07:59
Checking or savings account we all I think I already have these at least a checking account so it can grow pretty familiar with it you don't get a significant Roi when it comes to a checking account,0:07:59–0:08:07
. savings accounts occasionally we do have a bank that we use that has what,0:08:07–0:08:18
I guess would be considered a high interest savings account that's a Ally Bank is an online bank but that money is generally fdic-insured and0:08:18–0:08:29
it is a good way to keep an emergency fund so if you need to quickly access that money for an emergency it's more accessible than money that you might have invested.
And just to be clear fdic-insured means if the bank that you have your money with if they go insolvent if they go bankrupt and they can pay you your money back if you have their account FDIC insurance is basically the government stepping in,0:08:44–0:08:51
and giving you your money back if that happens to this money is safe you can't lose it even if the bank that you have it with goes back.0:08:52–0:08:59
Most commonly used checking accounts and savings accounts are fdic-insured there are some,0:08:59–0:09:05
high-yield savings accounts that are not FDIC Insurance always look at the fine print pillow and see if it is fdic-insured or not.0:09:06–0:09:10
So another common type of saving his retirement savings and while,0:09:10–0:09:23
you can really use any savings for your retirement there are certain benefits of having specific retirement account the federal government provide certain tax benefits for retirement investment accounts0:09:23–0:09:30
so the most commonly used ones that you may have heard of or up hopefully also using right now if not.0:09:31–0:09:45
You might want to start using them after you have to sit listen to this episode is a 401k and an IRA the benefit of these types of accounts is that you don't have to pay any income tax on contributions to those accounts how to assert annual limit for0:09:45–0:09:54
phone cases typically $19,000 per year and for an IRS typically $6,000 a year at the time of recording this episode 1.
And also you know when we're talkin about retirement savings accounts.0:09:59–0:10:10
There is a difference between the IRA and the 401K and that 401k is an employer provided account so the first thing that you should do if you don't know already0:10:10–0:10:17
is check to see if your employer offers a 401k okay this is the easiest way to put money into a retirement account0:10:17–0:10:31
your employer takes it right out of your check pre-tax and puts it into the investment account and many companies will match up to a certain percentage over a certain. Of time so that's basically free money.
Yeah so the matching is it's not all employers offer this but for those that do this is this is literally free money for every dollar that you,0:10:40–0:10:47
investing to 401K your employer might match that with 50 cents $0.25 whatever their of their matching ratio is,0:10:47–0:11:00
the tax benefits at these accounts provide they come at a cost so the cost of this case is that the money that you put into the count has to stay into in that account until a certain age limit there are some exceptions.0:11:00–0:11:02
But generally that is true.
These accounts are designed so that you will keep your money in there for a long.
Yeah and exchange you get those tax benefits that we talked about before,0:11:11–0:11:25
another interesting thing and we'll go into a little bit more detail later about why this is important when contributing to a 401k you have a contribution limit of $19,000 a year that is income tax rate.0:11:25–0:11:32
Meaning you don't have to pay an income taxes on those contributions to the accountant-general you can play will take them out of your paycheck before you even get your money,0:11:32–0:11:36
that's it you can contribute to a 401k also with after-tax money0:11:36–0:11:49
the contribution limit for a significantly higher up to $56,000 a year in total including the tax rate contributions forget to why this might be interesting to you a little bit later but keep that in mind.
What other important thing to know is,0:11:51–0:12:00
if your company does not offer a 401k then you can open up an IRA and receive the same tax benefits that you would receive,0:12:00–0:12:12
receive through the employer benefit program if your company does have a 401k and you are putting money into that you can still open and I are but you're not going to have the same pre-tax benefits.
Yeah keep in mind that even if you can open an IRA contribution limits at a tax return Ira how much lower than for 401k they're only $6,000 compared to $19,000.
And then it makes things even more complicated why don't you tell us about the Roth IRA.
Okay so Roth IRAs are also retirement accounts but the different 2 phone case and normal I R Us in a very specific and profound way,0:12:34–0:12:37
they have a tax benefit but the tax benefit is my front loader,0:12:37–0:12:46
it's back loaded meaning the contributions that you make into the account of fully tax we pay your normal income taxes and whatnot and whatever you have left0:12:46–0:12:50
then on your paycheck if you get extra paid out you can contribute to your Roth IRA0:12:50–0:13:04
and the contribution limits state are shared between normal i r s and Roth IRAs with $6,000 a year there is another astrix for Roth IRAs if you make over a certain limit of money per year the contribution of it starts phasing out so you0:13:04–0:13:12
can pay even lesson to the account until you cannot pay anything into the wrestler anymore but we'll get to that in a little bit as well because there is a workaround,0:13:12–0:13:18
the amazing thing about the Roth IRA is that not the contributions are tax-free but the distributions.0:13:19–0:13:29
Tax-free so whatever returns that you make on your investments in a Roth IRA if you distribute them after a magic age limit switches that approximately 60 years I think0:13:29–0:13:39
you don't have to pay any taxes on those distributions so normally would have to pay capital gains taxes on those distributions with a rough Tire on your tax rate and.0:13:39–0:13:48
If you think back up to the example that we had in the beginning with investing $1,000 and after 30 years that's $10,000 would you rather pay taxes on $1,0000:13:48–0:13:58
and then get $9,000 tax free or would you rather pay no taxes on $1,000 but then pay taxes on your $9,000,0:13:58–0:13:59
that you take out of the account later,0:13:59–0:14:11
like if you have a retirement account in which money grows over a very long. Of time you probably want to have to do some fusions tax-free instead of the contributions this is especially true if your,0:14:11–0:14:14
investing very early in your life and you probably enough,0:14:14–0:14:28
and a lower marginal tax bracket because you got the beginning of your career you're not making that much money yet so the contributions that you're that are being taught that has a relatively low rate but later in your life when you're like a very established have a good career,0:14:28–0:14:37
a lot of money hopefully then the your individual tax bracket for your capital gains will be significantly higher,0:14:37–0:14:38
It makes a lot of sense for people that expect bacterial growth to code apart reading for Average Joe if the money is not account for a very long time,0:14:48–0:14:58
20 30 40 years and absolutely makes sense let's get back to the 401K after-tax contributions that we talked about earlier.
I'm already putting money in pre-tax why would I want to have them put more in.
the after-tax contributions there is no tax benefit anymore you might as well just put them in their normal investment account and then you're not subject to the same limitations potentially or restrictions that your 401k might impose on you,0:15:17–0:15:18
why you might want to do this is the following if and only if your employer offers a specific version of the 401K and not all employers offer0:15:28–0:15:34
what you need to have is your employer needs to allow after-tax contributions to 401k and needs to allow0:15:34–0:15:46
in-service distributions what this means is your employer doesn't actually maintained this account for you if your employer will partner with some financial service provider third-party that I should provide0:15:46–0:15:52
your 401k account and if that third-party financial service provider also offers a Roth IRA0:15:52–0:16:09
and offers stability to transfer money from your 401k to your Roth IRA then what you can do is you can transfer all the after-tax contributions on a regular basis most providers offer this to your every quarter or once a year whatever you can move all of these contributions0:16:09–0:16:16
to the Roth IRA and what happens now is that all these Investments that you've made suddenly grow tax-free.0:16:16–0:16:30
All the distributions that you take from them after the magical age cut off you can get without having to pay taxes for so this is a little trick that not everyone is aware of and it's a little complicated to execute but if you figure out how to do it,0:16:30–0:16:39
and you have the money to do it this can save you a lot of money over a long. Of time is called the wrought-iron Mega backdoor I don't know who comes up with these names but that's what0:16:39–0:16:42
if you Google for this you will find all the information that you need.
Follow us on social media to get a peek behind the scenes we are at unmarried media on Facebook Twitter and Instagram okay and so the last type of savings that we are going to talk about here are just traditional.
Right and we want to0:16:57–0:17:11
explore a little bit what the financial products are generally available that you can use to invest your money but before we dive too deep we want to briefly establish some fundamental understanding and Concepts around Investments specifically liquidity0:17:11–0:17:21
what is a term that you may or may not have heard before in relation to financial products what this means really is how easy it is to0:17:21–0:17:31
get your money back after you bought some Financial product or some investment for example for retirement accounts the liquidity is very low because you can only get the money out.0:17:32–0:17:39
With some Asterix When You Reach the the age threshold of 60 or whatever it is whereas when.
Standard investment account say your money in stocks you could sell your stocks and within a matter of few days you can have that money in hand so it's far more liquid than a retirement.
Yes and it in the savings account you could take it out immediately right so so this describes how easy it is to access your Investments physically and and and turn them back into Cash.
Quick question though when it comes to assets that are not liquid would that also include things like you've invested you bought a home or you've invested in somebody's business.
Yes that that is absolutely correct.0:18:16–0:18:28
Takes weeks or months to sell a home so if even if you decide today you want to turn your home Into Cash it'll take long time for you to be actually able to get that cash out of it and obviously there's a.0:18:28–0:18:34
Pick effort around that immediately move out and whatever so it's like real estate is real low liquidity asset.0:18:35–0:18:39
So I think one of the first very common investment types that people use,0:18:39–0:18:48
that we want to talk about our CDs deposit basically what this means is you take out certain amount of money0:18:48–0:18:58
you bring it to your bank you sign some paperwork and then starts paying you interests at a regular interval until a certain maturity date was reach at which point,0:18:58–0:19:02
you get your money back in the bank stop spending your money for you in Bessemer.
And typically was CDs this whole holding onto your money for a certain. Of time so I actually had a CD once when I was maybe like 18 it was my first kind of,0:19:13–0:19:21
foray into saving money but I believe and correct me if I'm wrong that you get a higher interest rate than your standard saving.
CDs generally have a higher interest rate than your average saving account especially cities that have longer maturity date.
Debt the longer they.
2 6 12 24 months 5 years0:19:34–0:19:42
and this is kind of like I think why CDs may have fallen out of favor for a lot of people in the last couple of years just room into things your money becomes really liquid,0:19:42–0:19:52
if your if it's in a long-term CD so you pay a high price and terms of liquidity for the high interest rates and in addition to that the interest rates at0:19:52–0:19:57
even long-term cities pay I'm not competitive with high interest yield savings accounts0:19:57–0:20:09
they're generally like one to 2% and the the high-yield savings accounts that you get at a lot of online banks and whatnot they generally pay more than 2% without having any liquidity0:20:09–0:20:16
sacrifices so you can put your money in and take it out any day without any of the cases other than that you don't get the interest for it anymore,0:20:16–0:20:26
1 minute fit of CDs however in compared to a lot of other of the investment products is that they are fdic-insured again if the bank goes bankrupt you still keep your money.
So I think a CD is pretty low-risk other than losing the liquidity for a. Of time pretty low-risk when your.
Yeah so we're looking at the risk factor at The Preserve one that said FDIC insured High interest or high yield savings accounts are also pretty low-risk and they provide better interest General.
So the next type of investment is I think what most of us typically associate with the word investment and that's stocks investing your money in stocks so what are stocks.
A stock fundamentally is a share in a company.0:21:04–0:21:10
When you buy a company stock what that means is you buy a share of that company and.
So you own a piece of that cup.
Yeah you don't own a specific door or specific break.0:21:16–0:21:23
You own a slice of the business as a abstract concept so what this means is,0:21:23–0:21:34
generally two things depends a little bit on the details but generally what this means if you own a right to the distributions of that company so if the company.0:21:34–0:21:36
or the value of the company Rises you own this edition of bother you or you have a right to those distributions reduce dividends0:21:45–0:21:59
the other thing that owning a share in a company allows you to do and this is very interesting I think a lot of people don't really make use of this but since you are a shareholder you now have voting rights so when the company makes big decisions basically,0:21:59–0:22:07
appointing a new member of the board changing something about how the company is structured generally the shareholders have to be off.
Is it all shareholders are only those who only certain percent.
It is all shareholders that have voting rights suck so some companies have different classes of stock and0:22:17–0:22:31
certain chair Types on non-voting shares so you don't get any voting rights with those shares and they are generally on the stock market at a little bit cheaper but then the results there's always also voting shares that allow you to vote and he's shareholder meetings,0:22:31–0:22:41
that said if you own a hundred dollars worth of stock in a 10 billion market cap company than your votes are proportional to the amount of shares that you own0:22:41–0:22:52
compared to the total number of shares that exist so if you think your vote in or democratic system doesn't mean anything then those votes mean even less benefit of stocks however0:22:52–0:23:00
whether they have a really good return of investment in general depending on what specific to buy but we're going to get into this a little bit later they're also very liquid,0:23:00–0:23:07
as long as there is a trading day on a stock market you can go and buy and sell your stocks very easily.
But on the other hand and I think this is one of the reasons why a lot of people are afraid of the stock market is that it does carry a risk and the value of the stock that you own is really based on the company's performance.
Write the company's performance and the economy is doing in general would you see a lot when you invest into the stock market especially if you buy individual stocks is a lot of the stocks will move in very similar patterns.0:23:32–0:23:38
Sometimes a specific company will break out up a breakout down but in general all the companies that,0:23:38–0:23:46
the movements are very similar to each other this is just because the market value of a lot of these companies is driven by the overall economic economic situation.0:23:47–0:23:52
Today they are all subject to the same economic situation so they will move very similar.
And on top of that unlike your savings and your checking and your CDs this money is not insured.
Right so if you buy a company and a company goes bust immoral than your money.0:24:05–0:24:18
That said there are ways to commit a gate that risk in the stock market and it gets us into the area of buying individual stocks vs buying fun let's go to talk about what individual stocks on why you might want to buy them.
So an individual stock it does allow you to specifically0:24:22–0:24:35
pick which companies you want to invest in so if you are someone who's very passionate about a certain area and you're following certain companies because you believe in what they're doing and you want to invest in those companies for just a single individual stock.0:24:35–0:24:37
In that company is one way.
Yeah that's a perfect example.
That means that we've already talked about how stocks carry a risk if you were to then take all your money in and invest that into one stock that's an even greater risk.
Yeah that's that's that's absolutely true about the company going but so busy that that would be terrible.0:24:56–0:25:06
Having a bad quarter all about year or if you buy an individual company you have to be expecting that those prices go up and down significantly,0:25:06–0:25:18
we haven't really talked about this yet but it's something that you generally need to call out if you invest into the stock market is almost regardless of what specific product or company or whatever you buy is you have to expect,0:25:18–0:25:22
the prices to go up and down and really important here is.
Ebb and flow to the store.
So long time you can expect a Disappear by something like an index fund and we'll get to that in a second you can expect your money to grow,0:25:33–0:25:42
short-term however you have to be willing to see you when you go or you let me go up and down and really important here is to not freak out0:25:42–0:25:55
if you can't deal with losing 10% 20% maybe even a few investment than any specific year then investing in stock is probably not the right choice for you you have to have the mental and emotional stability to0:25:55–0:25:58
be able to deal with your investment going up and down in value.
Yeah you also don't need to look at your Investments every day if that's if you're that kind of person.
The best way to invest in the stock market is to treat it like a retirement account where you buy assets and then you just let them sit there for the next,0:26:13–0:26:22
30 years so one way to mitigate the risk of stocks is to not buy individual stocks but too soon as they buy a bouquet of different stuff.0:26:22–0:26:31
3 idea is if you spread out your Investments across lots of different companies than the performance of any individual company will not impact you as a,0:26:31–0:26:35
and you could go and just select a hundred different companies,0:26:35–0:26:42
and then buy a little bit of stock in each of them which would be a nuisance and will cost way too much and transaction fees and whatever0:26:42–0:26:55
so instead there's a financial product what does this for us and it's called a fun. When you buy a fun you basically buy shares and lots of different companies depending on the composition of the funds to everyone has a different composition a by different specific0:26:55–0:26:59
can I show products by buying a phone you basically buy a basket of stocks.0:27:00–0:27:09
It's some funds for example Target a specific Market segment so could be large cap International companies0:27:09–0:27:15
could be a thematic funding for example they could only invest in renewable energies.0:27:15–0:27:28
Or Tech or in Commodities and some funds have a much lower risk than buying individual stocks because you'd by the brass electrical companies instead of just individual companies and,0:27:28–0:27:30
we mentioned this number before earlier but,0:27:31–0:27:43
one such fun that you could buy index funds day index Pacific over markets you might have heard of the S&P 500 and talk about the S&P 500 specifically,0:27:43–0:27:51
any given year of the S&P 500 may have gone up 5% or gone down 5% but over the last 90 years.0:27:51–0:27:56
On average annual a the return of investment was over 9% for the S&P 500,0:27:57–0:28:04
so if you buy an S&P 500 Index Fund you can expect to approximately get that amount of Return of investment,0:28:04–0:28:09
if you're looking at very large timeframes over decades versus individual years.
Okay so now that everyone understand stocksteach me about ponds.
The bonds are basically a little bit like reverse loans instead of borrowing money from somebody you are loaning somebody money0:28:24–0:28:37
trabant the way that this works is a bond is issued by a bond issuer and typically these are in a companies or Government Federal Government state governments International governments0:28:37–0:28:40
and they issue a certain number of certificates,0:28:40–0:28:50
at the certain price and with the promise to pay you a certain interest rate so if you go and buy a bond certificate you pay your principal payment to the issuer0:28:50–0:29:01
you get the bond certificate and that is sure will now pay you an annual percentage as for you return of investment from their perspective it's done paying interest for the money that you have given them,0:29:01–0:29:14
and bonds also have what's called a maturity date when that has reached so this very similar to CDs and Africa are you get your original principal back again and the issue has stopped paying you in.
But it's my understanding that bonds are much higher risk and generally have a lower Roi so why would somebody want to invest in bonds over say stocks.
I don't think the notion that the generally higher risk is true so,0:29:29–0:29:38
specifically when were talking about governmental bonds if you buy a bond from a a nation state government where the nation has a really good,0:29:38–0:29:41
GDP that said the us as an example or maybe Germany,0:29:41–0:29:50
those bonds are considered very very safe Investments because there's virtually no way that is nation-states Will suddenly just fail and not0:29:50–0:30:02
pay you back your bond principal or talk about companies the risk is definitely higher talk about US Treasury bonds or or Drummond bonds that it's it's a very safe bet you will see that,0:30:02–0:30:10
in the general or return of investment especially for the slow response to interested they pay is generally very.
Okay so outside of your standard accounts and investing in the stock market there are a lot of people that invest in things like real estate which0:30:19–0:30:32
I think it's done in a couple ways one being buying property and then renting it out essentially making an income off of that property and then to these people that flip houses right so they buy house0:30:32–0:30:39
at a lower value fix it up and then sell it at a higher value to make a profit in a short.
I think there's one other important way that people invest into the real estate market it's related to the first one but it's kind of combining the homeownership with with renting out property Courthouse hacking,0:30:52–0:31:00
the idea is that you buy a multi-unit properties of liquid two or three Apartments a house with two or three apartments or a duplex or something like that,0:31:00–0:31:07
and you moving to one of the units yourself and you rent out the other units what this allows you to do is,0:31:07–0:31:16
for one certain percentage of your home it's rented out and it's generating cash for you but because you are also living in that building0:31:16–0:31:22
you get all the tax and credit benefits that come with primary home ownership.
Versus having a income home.
Yeah so if you just buy a property that you do not live in and rent it out you generally get worse interest rates from Banks0:31:32–0:31:44
do not get any tax credit on your interest that you pay if you live in one of the units of a multi-unit property I think there's a limit of four units but then you get all of these benefits while also having,0:31:44–0:31:47
basically your tenants pay your mortgage,0:31:47–0:31:54
the goal of any property investment is important is to be cash flow positive so you really only want to,0:31:54–0:32:04
make an investment property if the monthly rental income that you can generate exceeds what you have to pay in terms of mortgage interest mortgage interest,0:32:04–0:32:08
mortgage principal it's like saving so it's not a cost.0:32:08–0:32:19
And then another way to invest money and we're just going to quickly mention that for complete the sake of our Commodities so you could buy gold or crude oil or.0:32:19–0:32:22
Certificates for the thing so you don't have to actually.
I don't have to pass.
Or like gold bricks in the basement.
There are still people that I can buy physical gold because they like the idea it has a reputation of being very resilient in times of Crisis and whatnot.
This is it happily unmarried. Media / support to learn how you can support our podcast.
Mama talking about investing we do have to briefly talk about taxes you'll like this though because so.
I don't think I like anything that has to do with taxes.
The tax on most people know is income tax that is the amount of tax,0:32:59–0:33:07
you pay to the federal government and potentially also to the state government based on the amount of money that you make on your paychecks,0:33:07–0:33:13
and this is a progressive tax system so meaning if you make more money you have to pay more in taxes.
Well you should.
If you look at the different tax brackets,0:33:16–0:33:28
you will see that the tax brackets generally they they grow pretty quickly your marginal tax bracket with just a text back at the highest rate that you reach can easily be 20 30% depending on the income that you make,0:33:28–0:33:32
now if we're talking about Investments when you sell Investments you also have to pay taxes.0:33:33–0:33:48
Only the games of those sales attacks and then they're also not taxed as income the taxed as capital gains and there's a different tax progression there different tax brackets and basically the amount of tax that you have to pay for this Cowboy game is different and it's generally lower I say we take0:33:48–0:33:56
we invest $1,000 and after a year we sell whatever we invested in stock for example and we make $1,100 in return0:33:56–0:34:02
so now we paid $1,000 and when we sell we get $1,100 of capital gains are.0:34:02–0:34:15
$100 crack so when we sell the stock we pay capital gains taxes on $100 of capital gains and depending on your tax bracket capital gains taxes are either 10% 15% or 20%.0:34:15–0:34:22
As of now when we were caught this in 2019 and so most people will probably only have to pay 10% and capital gains taxes,0:34:22–0:34:30
so while your income is taxed at maybe like 20% you your capital gains only taxed at 10% so yeah she have to pay significantly less.0:34:30–0:34:35
So that's why capital gains taxes are not as bad as income taxes generally0:34:35–0:34:47
but another interesting thing as which makes it attractive to invest into higher risk assets like the stock market when you sell assets that you made a Lawson you can actually do,0:34:48–0:34:57
those losses up to a limit of $3,000 per year from your taxes by stock for $10,000 and whatever company it is doesn't,0:34:57–0:35:02
perform very well and the stock goes down in value and when I sell it a couple years later,0:35:02–0:35:08
it's only worth $7,000 so now I've realized $3,000 in losses0:35:08–0:35:21
distritos knows I can completely deduct from my taxes basically may need meaning if I'm paying 30% in income tax I can drop that $3,000 on that meaning the federal government actually gives me back $1,000 of my $3,000 in losses0:35:21–0:35:30
2000 dollars which makes it more attractive to invest into high-risk assets and one strategy that I personally use is0:35:30–0:35:33
this is not Financial advice please go to professional.0:35:33–0:35:45
What you can do is if you have a broad portfolio of different assets and every year you look at which assets went up in value Which acid went down in value identify exactly $3,000,0:35:45–0:35:53
and losses that you can realize it's called loss harvesting are you busy can the doctors losses from your income tax.
So you sell the $3,000 in Lost stock and then deduct.
Yes I'm so I realized those losses to be able to deduct them from Attack.0:36:04–0:36:16
Talking about higher risk assets want to call out one important difference especially cuz if you are not aware of this you may make a mistake that could cost you all of your money that is differentiating between an investment,0:36:16–0:36:20
and a speculation or a speculative investment.
So I think the first example of speculation is kind of0:36:24–0:36:38
buzzword that we all hear about and that's no man should be invested in Bitcoin cryptocurrency that's the next big thing and all these people who were invested who like when Bitcoin went through the roof made a ton of money overnight0:36:38–0:36:48
for people who may not truly understand how cryptocurrency works I mean that's a volatile area to invest money in you shouldn't look at it as an investment.0:36:48–0:36:53
Another example would be timing the market you want to talk a little about that.
Yeah so the idea behind timing the market is it if you are super smart and you or you know something that nobody else knows.
This is a line.
There's a very fine line and it's called insider trading and that is.
Against the law.
Yes there's a federal crime so there is a fine line but let's say not to know something but you see something in the market and how companies behave how is stock behave and there's Traders trying to analyze,0:37:19–0:37:34
technical indicators identify companies that they expect will go up I expect we'll go down and so the idea is if you're really good at this and have the ability to do so or have a computer program that you can predict.0:37:34–0:37:38
When certain critical events in the market happen0:37:37–0:37:52
and with that you can either buy or sell a specific assets such that you can make a profit off of that reality here is that even the best traders in the world with timing the market generally do not outperform whole Market indexes0:37:52–0:37:58
if you buy an S&P 500 Index Fund you will probably make more profits than any of your friends trying to time the market.0:37:59–0:38:01
Yes over longer. Of time is that.
Okay and then the last example here is Angel Investing and I think many people are familiar with this when you think about tech startups a lot of tech startups get angel investors who are people who are just donating their money money0:38:14–0:38:20
because they believed either in the person or the the business and what it is that they're trying to do.
Right and we're talking here about that millions of dollars right but when we say Angel Investing and just contacts we don't actually mean that you are going to throw a million dollars at a tech startup.
No but maybe your brother or your best friend wants to open a restaurant and you said here I'm going to invest $10,000 into your restaurant there's no guaranteed Roi on something like that you have to give a good face.
Rats at this is not reinvestment this is a speculation you speculate that the business will be successful and will provide the monetary benefit to you but you don't know it's very high risk with us that's why it says.
I think our main point here is that I mean if you want to invest in a speculation that's totally fine,0:39:03–0:39:07
we're not saying that you shouldn't but what we're saying is that you should,0:39:07–0:39:15
be conservative at most no more than 5% of your net worth because you need to you need to feel comfortable.0:39:15–0:39:27
Losing all this money you stand in the perfect set of circumstances to potentially make a lot of money but you also have to be prepared that whatever money you put into a speculation you're going to lose.
Yeah so if you're not ready or willing to take to just take the same amount of money and light it on fire in your backyard which is by the way also a criminal offence we should really stop making suggestions.
I think of this is gamblingyes.
Right that's what it is yeah so red or black but expect to lose everything you bet.
All right so we just covered a lot of information so if you're still with with us.
If you even started watching this video.
We're going to boil it down to one of the main points here what we want you to take away from from today's episode starting with number one we were not clear and making this point.0:40:08–0:40:10
You need to save money.
But I think it's in your best interests to do so and good things will come from it even if you I think this is important even if you feel like you don't have any money left to save anyting or it's just a little.0:40:23–0:40:32
$50 a hundred dollars like that might be a lot for some people but if you can put that money aside and,0:40:32–0:40:42
start saving and not spend it for whatever you would have spent it instead then it will start adding up and it will help you going forward in your life.
In fact that is cut with how I started myself so that's a perfect example I was in a position where I did not feel like I had any extra money left0:40:52–0:40:57
to start saving and the first step that I took although it felt like a baby stuff,0:40:57–0:41:10
added up was I set up a direct deposit so that every paycheck $50 went into a savings account and that's slowly started to snowball to a point where I couldn't take a significant chunk of money and starting back.
And there's some bandsaw for tools and things to help you do that so far sample I think you have a debit card. Always rounds up to the full dollar and puts it in your savings account or something like that right.
Yes I have Wells Fargo and every time I use my debit card it doesn't round up because the bigger the purchase or sometimes I'll yeah sometimes it's a dollar sometimes it's $6 but that really adds up as well.
So if you don't feel comfortable setting up a direct deposit for $5,100 out of every month this could be another way how you can get some money into a savings account,0:41:47–0:41:49
then the next one is0:41:49–0:42:01
the earlier and you invest the better if you can take you a very first paycheck that you ever aren't and put that entirely into an investment account then you should absolutely do that because this will pay off.
And if you're not that person don't be discouraged and don't think that it's too late for you to start it's never too late to start.
Especially if you if you feel like you have that than the deficit eating you up and you can't even think about saving anytime soon0:42:18–0:42:27
if you can start paying off your debt only even if it's only a very small amount as soon as you have paid up that first credit card all that money that you can pain0:42:27–0:42:35
an interest with a credit card and principal payments what not no freeze up and suddenly you have significantly more money you can throw that at the next steps or not the next steps are.0:42:36–0:42:44
And eventually you have a decent amount of money available every month that you can then save and invest so don't get discouraged.
Speaking of high-interest debt the order of operation here is important the first thing that you want to do is pay off your high interest at once you've done that,0:42:52–0:43:03
you can take the next step which is going to be start an emergency savings account once you establish emergency savings account or in conjunction with the emergency savings account,0:43:03–0:43:11
take advantage of any employer offered retirement savings account so speaking of high-interest debt there,0:43:11–0:43:19
is an order of operations that you want to take when saving money in the first is going to be paying off your high interest at once you've done that you want to move towards,0:43:19–0:43:29
an emergency savings account the next thing you're going to want to do is Max out the tax advantage of your retirement accounts once you've done that you can diversify your Investments.
And with that thanks for listening if you want to invest in us please go to happily unmarried. Media support and find out how to do so.
And also don't forget to like And subscribe.
And I'm Danielle and we are happily unmarried.0:43:53–0:43:56
You better stop listening right now.