401k, Debt, Divorce, Home Mortgage, Must Have Documents
March 31, 2022
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On this podcast of Ask Suze & KT Anything, Suze answers questions from listeners about what debt to pay down first, interest on crypto, choosing the right funds in a 401(k), and so much more.
March 31, 2022. Good morning, Suze. Good morning. Let's tell everyone why we got up so early today. Super early because two days ago we started getting up or I started getting up at 5:00 to go fish and it was with great success that we probably caught the last few Wahoo of the season. So happy. So, we when you start waking up really early and it's dark out, your kind of your body gets used to it. And we got up super early today. Really early. Really early. But all right, everybody welcomes to Ask Suze and KT Anything. Now I keep forgetting to tell all of you that if in fact you want to write in a question, you simply write it to AskSuzePodcast@Gmail.com or you can go on to the Women & Money app and ask it there. I personally think it's just easier to send in a question to AskSuze SUZE Podcast@Gmail.com. Also, I just have to tell everybody many of you know that my official Facebook page which is Facebook.com/SuzeOrman was hacked. We now have it back in my possession. So, thank all of you for letting me know and for writing into Facebook but we're all okay there. Thank goodness. And tell everyone if they start seeing weird things on that Facebook or on any of our accounts let me know, let us know because they're obviously there's a lot of funny business going on around the world these days. So, we're all we have to be careful. Suze, I have the most incredible selection. Here she goes again. Does she not say this every single week? No, I picked out a real variety for everyone today. And Suze said, well what's your theme? And I said it's all over the road, it's great. So, I'm going to start now with Jennifer ready and you'll like this one. This is very sweet. Hi Suze and KT. I'm such a big fan of both of you, Suze. I met you briefly at Louise Hay's 90th birthday party, wow, this made me smile because of Louise. Any of you that knew Louise Hay absolutely knows why Suze and I are smiling. Probably one of the most wonderful women that ever graced this planet and she built Hay House, a great publishing company and partner of ours for now over 20 years. Yeah, we love Hay House, but we loved Louise. So, she said I have so much going on and I need your advice. I have credit card debt of $30,000 with 0% until June 2023. I have a HELOC with 25,000 fixed at 2.87 and 21,800 at 5.11%. My question is what I pay down since I have 0% until 2023 and I can write off the HELOC with my taxes. So, what are your thoughts Suze give Jennifer some advice. Jennifer. Wait, can I say something since you met us at Louise's birthday party, Jennifer. If you read the books that Suze and Louise's published, you might have some answers. Well actually KT I was kind of going to go there with Jennifer believe it or not because Jennifer, here's what concerns me. You have almost $75,000, to be exact of debt. And this isn't just debt. This is debt on a credit card. That's a lot of debt. And the question has to become more than which one do you pay off first. the question has to be why are you carrying so much debt? Debt is burden. It's like you're in prison when you have debt. So how can you be emotionally and spiritually free. Which is what Louise Hay being all about when you have such debt. So, I'm asking you can you just think about that for a second here. Now you have credit card debt of 30,000 at 0%. That's great. But you have a HELOC at 25,000 but you say the HELOC is fixed at 2.87% and you have $21,800 at 5.11%. So if it were me given that your HELOC is fixed, that is not what I would be paying off first. I would be paying off either the 21,000 at 5.11% or the 30,000 at 0% because after 2023 who knows what that will go to. So, I would probably divide it between the 30,000 and 21,000. But I'm really asking you to think about this because you are somebody who's obviously living above your means… Not wise, not wise, not wise. Okay. KT. Okay. Ready. This next question. Suze is from Barb. Glad to hear you're back on your island and back to loving life. Your voice sounds pretty terrific. It’s getting there right everybody, it's getting there. Keep the faith. So, Barb has a question about crypto. I put some money into a few different currencies about 10,000 and I'm wondering whether or not I should be earning interest on these different currencies. You should see KT’s face right now. Everybody should have been my quizzie because I haven't got a clue if you should earn interest on currencies in crypto. I don't think you can. You can. Alright so wait. So, she's not earning any interest so far. She wants your sound advice. She thought that was a little joke. She wrote ha ha sound advice. So, Barb, I'm not going to go into great detail about this because most of the people who listen to the Women & money podcast as well as everyone else smart enough to listen really. They're not into crypto. So, there is something known as staking where you can stake the actual crypto that you purchased and earn 6-8% on it. So, you need to do more research on that. A lot of people do it. A lot of people are making interest on it. So, it's something that like I said, you should look into it and consider it absolutely. All right go on. Where does she go? To the place that she actually holds her crypto. So, every company where you purchase crypto from usually has the ability to stake the crypto where they take your crypto, they lend it out. They do all these other things and pay an interest. But the place that you are holding your crypto at. Okay, next question is from Sylvia. First, she wants you to know her husband and she are in their 40s. No, I love being old. My 40s were really a very challenging time in my life. So, I really love being where I am right now. My husband and I put them. How come when I asked you a question, you don't ask it back to me. Do you want to be in your 40s? Yes. Why? I want to be in my 40s. And I mean this seriously everybody because I wish I had known seriously to take better care of myself in my 40s. I wish I had spent time stretching and doing yoga and eating everything that was healthy for me versus all the fast food KT, truthfully that I used to eat and not working seven days a week, 20 hours a day. And I wish I wish. She didn't know me then everybody, she didn't meet me until she was 50. And I was in relationships. I tried to get away from that whole time. I understand that reasoning very, very well. If you knew me, you wouldn't have wanted to go back to the 40s because you would have been great. Okay, so Sylvia said that she and her husband put that they contribute the max to their 401K to get the company match the Roth 401K as well. So, the question is if we wish to contribute more to our retirement accounts, should we put it in the Roth IRA so we can invest in different funds or put more money into the Roth 401K. Another part to this question is how do we choose the funds in the company? 401K I know to look at the lowest expense ratio. Is there anything else that we need to know? For example, the Vanguard 500 Index Fund and Vanguard Total Stock Market Index Fund seem to be similar funds. Alright, so this is actually a two-part question. So, Sylvia, the first thing is this obviously you're getting a match, KT just sent, you know, gave me your email and it's a lot longer. KT makes the shorter everybody because you make them so long. Right, is that you get a match in your 401K at work. So, the Roth 401K so you obviously would contribute at least up to the point of the match in your Roth 401K at work. After that you would absolutely do a Roth IRA since you qualify for it, if you could max out both the Roth 401K and the Roth IRA, you should do that. The reason that I want you to do a Roth IRA is all of, you need to remember that a contributory Roth is different than when you put money in a Roth 401K. In a contributory Roth, you can take out the money that you originally contributed at any time without any taxes or penalties, regardless of how long the money has been in there or your age. You can't do that in a Roth 401K. So the more you can get into a Roth IRA not only because of the diversification of what you can invest in, but also because of the liquidity of it, you would be far better off, but if you can max out on both, that would be fabulous. Next, your second question is how you pick funds in your company's 401K. You say, you know to look for the lowest expense ratio. But anything else? Yeah. You want to look at, what is the fund that you're investing in, investing in? What kind of diversification do you have? Is there duplication? Is there not? Are they overseas? Are they here in the United States? Are they invested in bonds? What are they invested in? That's number one. You also really want to look at their 10-year track record. Now, I wish you could look at their 20-year track record or their 30-year track record because 10-years really isn't quite enough in my opinion. So, you just want to look at how have they done over the long run? You also want to look at how long has the current manager who's managing that fund if it's anything other than an Index Fund? Really? How long have they been doing it? Because maybe a manager is brand new and the fun that has a great track record has nothing to do with that manager. You also say, for example, the Vanguard 500 Index Fund and the Vanguard Total Stock Market Fund seemed to be similar funds. They seem to be similar funds, but really, they are not. The Standard and Poor's 500 Index Fund includes only large cap stocks, so they only include the 500 stocks that make up the Standard and Poor's 500 Index. The Vanguard Total Stock Market Index Fund is made up of about 4,000 stocks. So, you have a little bit more of diversification, even though it's made up of almost 4,000 stocks. That is because of how they figure the index. What's interesting is they really operate very similarly. If you look at the 10-year history of both the Standard and Poor's 500 Index has actually done better by only 0.33%. So, you could go either way if you wanted true diversification everybody, really diversification you should be looking into the Standard and Poor's 500 large cap, The Standard and Poor's Midcap 400 and the Russell 2000 for small caps. If you divided your money between those three, you would then have true diversification on every level. And maybe I'll do a Suze School on why the other isn't as diversified as you might really want. Even though I've been telling all of you forever by the Vanguard Total Stock Market. Either fund or ETF it's just the easiest way to do it. Ready. Next one. Suze is from Ryan and Ryan says I'm writing because my friend Ahu needs a major slap down. I love that name, Ahu, Ahu, Ahu. He needs a major slap down and a really good talk from you. He is currently renting a small apartment and pays 1,800 a month in San Jose California. He thinks renting is a waste of money and that at the age of 35 he should be buying a house and contributing to a mortgage. He did some calculations found that if he purchased a house for 7-800,000 his monthly mortgage would be less than what he is currently paying for rent. In my opinion, he cannot afford to buy a house. He makes about 100,000 year as an assistant professor has 15,000 of student loan debt, zero emergency fund and he just started contributing to a 403B plan two months ago. No Roth IRA. His current monthly expenses are about $4,000 including rent. When I asked how he was going to pay for the 20% down payment Ahu said his parents will give him $80,000 and that he would get the remainder of the money by doing a partnership program with an online company. So, Ryan, I'm so happy you wrote in because hopefully you could get ah who to listen to my answer. Ahu this is the stupidest, most ridiculous dangerous thing you could ever do in your life. And Ryan, if this is your friend and hopefully he's nothing more than your friend because I would hate to think that maybe this is somebody that you are in a relationship with because if you're in a relationship with this person, it says a lot about your judgment as well. I'm serious. Ahu listen to me, let's just make some common sense here. First of all, currently you're paying $1,800 a month for rent in San Jose California. Since you're in California, you're making $100,000 a year, approximately California has the highest income taxes for a state possible. So, you're probably lucky if after everything they are subtracting from your Federal State-Income Tax and everything else. If you're clearing $50,000 a year, Let's just make some common sense here. You're going to buy an $800,000 home in the state of California. First of all, you're going to have to be paying at least $16,000 a year of property taxes. Plus, you're going to have to be paying insurance if you're only getting $80,000 from your parents, and I say only with that is a lot of money and you buy an $800,000 home. Your mortgage is $720,000. At today's interest rates plus, the fact that you're going to have to pay PMI because why you're not putting down 20%. So, your interest is actually going to be even higher, you are looking at about $4,000 a month on this mortgage. Are you crazy? $4,000 a month plus another $1,000 or $2,000 a month. When you're looking at property taxes, maintenance, and everything else, you cannot afford it. And the company that you're looking to do a partnership with, I can tell you, you should stay in my opinion as far away from them as possible. You name them Ryan in your email. And the reason we didn't name them is I wouldn't touch them with a 10-foot pole. I don't know Ahu you are about to make the biggest mistake possible buying at the top of the real estate market, buying when you cannot afford it, buying it when you have to borrow money from your parents, who even knows if they can afford it. Did you do a sales job on them as well? Ahu. To make them feel guilty to have to do this. This is just plain lunacy. So, are you denied? You could not be more denied if you tried. Alright, that's it. Alright, KT. Next Suze. That was the best slap down I've heard in a long time. And Ahu if you think about it, when you do the calculation, your 30-year monthly mortgage is going to be double the current rent you're paying. So, what do you want to be in a hurry for? Save some money? What kind of figure did you do to come up with that? An $800,000 home? The mortgage on that is going to be less than 1,800 a month. I know one thing I can guess who, that you're not an assistant professor of finance. Alright, let's move on everybody. The next question is from Laura. I'm writing to ask you for your advice on how to handle finances on my impending divorce. I've been married for over 30 years. I finally mustered up the courage to file for divorce. My husband and I have raised two amazing children, but I've been quite unhappy. Long story short alcohol abuse, verbal abuse, no intimacy. And she said during most of the marriage and always wanted to stay until my children were launched. Mission accomplished. And I'm reading this Suze because I think there's a whole lot of women out there that lived this way. She said I'll turn 60. I wish I wish we could be talking to her because I would be asking her, was it worth it to stay just to launch your children 30 years? Or did you teach your children that they need to stay in an abusive relationship just to launch their children. So, for the women who are listening to this, seriously, what are you really teaching your children? Because if you think your kids don't know that you are unhappy, if you think that your kids don't know that you are staying for the wrong reasons, I'm here to tell you. They most certainly do. You might want to talk to your kids. Was it worth it? I doubt it highly. But okay, keep going. Well, the rest of this, I think what you said is more important about advice. Alright, because the rest of this, she's asking you to be her divorce counselor. Bottom line is that Laura's turning 60. The husband's 55. He has a lucrative job, makes over half a million dollars plus, she's in sales making about 75,000 a year. They're not quite divorced yet. And she's asking you Suze. All right. Great. I get what you're asking me, my dear Laura, which is this. Do not succumb here. Do not be a woman who's about to get divorced and says it's okay. No problem. Right. Whatever you want to give me, I'll accept you have been with this person for 30 years. What that means is you actually deserve half of the pension and his retirement account that he saved over those 30 years if he's going to get a pension, if he's going to do whatever, so you are to get yourself a serious divorce lawyer, even if it's going to be amicable, even if you think it's going to be okay, it's not, right because you say in here, right that you've been quite unhappy. There's been alcohol abuse, verbal abuse, no intimacy during most of the marriage. So, what makes you think that that isn't going to carry over in this divorce? So, you need to know what is my favorite saying, be a warrior and don't turn your back on this battlefield? Because this is a battlefield. This isn't a battlefield with him. Listen to me closely. This is a battlefield with your tendency of not honoring what you need what you want, what you deserve. You already gave up many years of your life for your kids. You are not going to give up one more day for anybody other than yourself and what you deserve, and you want, and you need. So, my advice to you would be go for its girl friend? Alright, time for my quizzie. This is your quizzie. Now everybody, Are you new to the Women & Money Podcast? Are you wondering what is the quizzie? The quizzie is not only for KT but it's for all of you. Especially all of you who have been listening to the Women & Money Podcast. This is where I picked out a question from one of the ones that you have sent in to see if KT and all of you can get it right. So, all of you now are going to pretend you're me. I'm pretending that I'm KT asking Suze a question and let's see if pretend Suze can answer the question correctly. Hello Suze and KT. I've just completed the Must Have Documents. And for those of you who don't know the Must Have Documents are documents that you all must have. Every single one of you needs to have a Will. A Living Revocable Trust, an Advanced Directive and Durable Power of Attorney for healthcare, and Financial Power of Attorney. So, you all need those. And if you're looking because you don't have those, just go to SuzeOrman.com/offer and take a look because that is whereby the way you can get $2,500 worth of state-of-the-art documents for $99. Anyway. The person says I have just completed the Must Have Documents and I'm in the process of funding my Living Revocable Trust. My question is, can I name the trust as beneficiary from our joint savings account? Or should the savings account be placed in the trust? There is probably a good explanation. Can you please enlighten me? They want to name what not to say that. What do they want to name? They want to take the savings account. That's right. They have a Living Revocable Trust. Do they change the title of their savings account to the title of the trust? Or do they simply make the trust the beneficiary of the savings account? I think you have to change the name, the savings account, the title. And why would that be? No. You have to put everything, your assets, in the name of the trust. And what is the benefit KT, of putting everything into the title of the trust such as a savings account versus just making the trust the beneficiary? Because the trust isn't a beneficiary and trust. No, I don't know. I don't know. But Suze, you've taught me and everybody that when you have your will and trust in order, you then need to transfer the title of your property into the name of the trust. Alright. I think you don't go through probate when it's like that. All right. So, you're positive. Yeah. All right. Ding Ding. Ding Ding. You're correct. But now, let me tell everybody why you would rather have everything in the title of the trust versus the beneficiary. Now it is true, if you make the beneficiary, the title of the trust and everything therefore goes into the trust, you're not going to go through probate. So, if you weren't allowed for some reason to transfer the title of a savings account for whatever reason, into the title of the trust, the best next thing you could do and make it the beneficiary. Okay? But the main reason that you want your savings accounts, your checking account's, your stock brokerage accounts, your title to your house, everything, in the title of the trust is that what happens if you don't die? I want all of you to remember that the beneficiary of anything only takes effect when you have died. It doesn't help you. If you have become incapacitated, you had a stroke, you had an illness, you were an accident and now you need somebody to step in and take over that account to write your checks for you to pay your bills for you. If in fact you change the title of your savings account into the title of the trust, that would allow somebody that you have named as Successor Trustee to be able to take over that account for you if you couldn't do it yourself. Simply naming the beneficiary of the savings account, the trust isn't going to help you unless you die. And the only thing it allows you to do therefore is avoid probate. So yeah, you need to change the title of your savings account into the title of the trust. I knew that answer because all my statements are in my trust name, all my bank statements. No, you knew that was true, but you didn't really know why. I didn't know why. And that's a great point because we all think the Will and the trust is there for when we die and it's there to protect you always. The will is only there KT for when you die because the will cannot help you at all when you have when you are alive. Which is why you need the Living Revocable Trust because that also helps you when you are alive in case you become sick you can't do it yourself you get older, that's why you need it. Alright. You learned something today. I learned a lot of things today. What else did you learn? I love the answer that you gave to the divorcee woman, 30 years, she gives up making sure that the kids can be launched. KT. How many people do we know that that's true. That they've done that. Thank you and what a shame. You know and I understand that we're not parents. I understand what it may be like when you are just might be interesting to talk to your adult kids that saw you go through that and do; they wish you had stayed? Why don't you ask them that question? Alright everybody that brings us to the end of another Ask Suze & KT Anything. And on Sunday, I'm not sure what we're going to be doing going to Suze's School, but I have an idea. So, you're just going to have to tune in. So, until then, what do you want to say to people, KT? We're going to stay safe, strong, and secure. All right, everybody see you on Sunday. Bye. Bye bye.
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Answer Yes or No to the follow statements.
I pay all my credit card bills in full each month.
I have an eight-month emergency savings fund separate from my checking or other bank accounts.
The car I am driving was paid for with cash, or a loan that was no more than three years, and I sure didn’t lease!
I am contributing at least 10% of my gross salary to a retirement plan at work, or I am saving at least that much in an IRA and/or regular taxable account.
I have a long-term asset allocation plan for my retirement investments, and once a year I check to see if I need to do any rebalancing to stay on target with my allocation goals.
I have term life insurance to provide protection to those who are dependent on my income.
I have a will, a trust, an advance directive (living will), and have appointed someone to be my health care proxy.
I have checked all the beneficiaries of every investment account and insurance policy within the past year.
So how did you do?
If you answered yes to every item, congratulations. If you are working on improving on a few items, I say congratulations as well.
As long as you are comitted to truly creating financial security, I applaud you. If that means you are paying down your credit card balances, or are building up your emergency fun with automated payments, that’s more than fine. You are on your way!
But if you found yourself saying No to any of those questions, and you’re not working on moving to Yes, then I want you to stand in your truth. No matter how good you feel, you have some work to do before you can honestly know what you are on solid financial ground.
Get the 4 Must Have Documents that you need to protect your tomorrows today....