401k, Career, College, Investing, Mortgage, Podcast, Retirement, Women And Money
July 04, 2019
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In this special July 4th episode of Ask Suze Anything, Suze answers questions from Women & Money (and the men smart enough to pay attention) listeners Joe, Kathy, Gina, and Danielle.
July 4, 2019. Happy July fourth! It is July fourth today, Independence Day. And I don't know. If you ask me, there's no greater independence truthfully than financial independence. Isn't that what this Women & Money, and the men smart enough to listen to it, isn't that what this entire podcast is all about? For you to really become independent women. A little bit ago remember I did a podcast called Financial Independence. That I no longer wanted to call it financial freedom, because it's not just enough to be financially free. If you don't know anything about your money, you have to be financially independent, where you make the decisions, you understand what to do, you understand what not to do. And that's why these Ask Suze Anythings are so important. Because this is where you write in and I answer your question if it's chosen to be on the air and sometimes I answer it one-on-one. Notice this time I said sometimes? And that is because we have reached that point. This podcast for whatever reason now has become very popular in Australia, in Dublin, in places all over the world. So all of a sudden we are expanding exponentially, and the emails are as well. If you're listening to me and you are in a foreign country, please know that I will not answer financial questions outside of the United States. My licenses and everything are for right here in America, and it's in America that I know the economy, and the markets, and the rules inside and out. Probably in my opinion, when it comes to personal finances, better than anybody else. So listen to the podcast with the emotional messages, the psychological messages, the financial independence and financial freedom messages that are also interspersed with the financial recommendations. So please don't write in with those questions anymore, because I just have to write back and say sorry, I cannot answer them. I just can't. Next. You are writing books, you're writing books. Many of the emails don't go on for two or three paragraphs, they go on for two or three pages. Now I have been reading them all. But when you write that many pages, then I can't get to as many emails anymore. And all of that has contributed to the probability that you might not hear back from me anymore one-on-one, like all of you have been up until this point but I still want you to write in because of the new app in the community that we are creating. So they could get answered there as well when that goes into effect. And again, if chosen, I will answer it on this podcast. So again, send in your email, keep it short, send in your question to asksuzepodcast, S-U-Z-E, @gmail.com. For true financial independence, you have to know the answers to questions, and we're going to get to those questions right now. The very first one comes from Joe. One of the smart men that listen to the Women & Money podcast, he says, Hey Suze, hey Joe. I'm a proud grandparent of my grandson, who I want to go to college, but I know he will need financial aid. Is a 529 plan better than a Uniform Gifts to Minors Act account when we apply for FAFSA? For those of you who don't know, FAFSA stands for free application for student aid. It is the form that you have to fill out, to know if in fact you're going to be able to get financial aid. Joe, I couldn't be happier that you asked this question if I tried and let me tell you why. You said in your email that you are a grandparent. And when a grandparent, or an aunt, or an uncle, or anybody other than a parent, or actually the students themselves, if they happen to be a dependent student, meaning they have a dependent, they're dependent on their parents, or whatever it may be, if anybody other than a parent, really opens up a 529 plan, it really hurts your grandson for financial aid far worse than you have any idea. So let me give you an example. Let's say you were a parent of your son, and you wanted to put money into a 529 plan for your son. Great. When you fill out the FAFSA application, or the financial aid application, that money is considered your money, not your kid's money. So let's just say you wanted $10,000 of financial aid. Only 5.64% of what you have in the 529 plan will count against them. So for instance, for $10,000, only $564 of that would not be considered for financial aid. If you were a grandparent however, 50% counts against financial aid. So for $10,000, $5,000 of financial aid would be exempt. So a grandparent, an aunt, an uncle, should never, or anybody other than a parent really, or the students themselves, if they're a dependent student, should never have money in a 529 plan. What you can do, is if you had already done this, transfer it to the parent. Have the parent put it in the account if they know that they're going to need financial aid. The other reason that I wouldn't want you to do a Uniform Gifts to Minors Act account is that it then is counted as the kid’s asset, and about 35% is counted against financial aid. So I'm thrilled that you wrote in and you asked this question. Grandparents never, ever put money in a 529 plan. If you know that your grandchild is going to need financial aid. Do it through the parents if you can. Now, obviously there is a lot more that you should learn about financial aid, 529 plans, and there is an expert. Mark Kantrowitz. Mark is the nation's expert bar none on this topic. You should all go to savingsforcollege.com. He's running that website now, and you will get the best and most accurate information that you could find anywhere if you're looking for information on 529 plans. Next one comes from Cathy. She says, dear Suze, thank you so much for the energy and love you give to those of us listening to your podcast. The world needs your voice. Thank you Kathy, it most certainly does. Anyway, she goes on to say, I'm hoping you can address a financial concern that weighs on me. I'm a single 38-year-old woman trying to make the most of a modest nonprofit salary. I've always been very responsible with my finances, living within my means, not taking on debt. Here's the thing. While I invest about 15% into a Roth IRA and 401K, doing this quietly terrifies me. Putting money into the stock market feels 100% like gambling to me, but a type of gambling I am forced to do if I stand a chance of being able to support myself in older years. Is there anything you can say to alleviate this concern? Am I right to be worried or my being paranoid? Kathy! Yeah. You're being paranoid. It doesn't matter though that you're being paranoid, because how you feel really makes a difference. So let's just see if I can make sense to you. It's not gambling. It's not gambling because you can know about the investments that you are making. You know recently, and I think I just said this in a past podcast, you never know with me anymore, I don't remember things as well as I used to. Joking! But you know, KT loves when we go to Las Vegas, which we go a lot, because that's where a lot of conventions are and I'm always hired now, it seems like more and more, to go speak and do a keynote at one of these conventions. Alright. And she loves to gamble, and what I hate about it, especially roulette. She loves to play roulette. Is that, there's no way to know what number is going to come up. There's just no way. It's like you're just spinning. It's the odds. It's the chances, it's I don't know. I don't find that thrilling on any level. But when it comes to buying a stock, you can look at the history of the company, the management of the company, you can look at the products that they can produce. You can look at their earnings, you can look at every single thing that you need to know to know to make an intelligent decision, oh, if that's a company that you would like to invest in or not. And if you don't want to do the research of every single company, you can buy a mutual fund that buys 500 of the companies, 1,000, 2,000 of the companies, by simply buying a Standard and Poor's 500 Index Fund. And so you own a little bit of all the companies, spreading your risks. These are the companies that run America. These are the companies that you purchase their products every single day. You use their cell phones, you use their networks, you use their information. You search on them, you talk to one another on them. You do everything on these things. These companies that keep America running are not going away. So if they're not going away, that means their stocks aren't going away. Now will stocks go up and down in value? Oh you betcha they will. But you are young. And I keep telling you, when you have, 20, 30, 40, 50 years till you need this money. Are you crazy? You want the stock market to go down now. Why does the stock market go down? The stock market goes down when there is a recession. When people stop buying the products that companies are selling, that companies are manufacturing. And why do people stop buying them? They stopped buying them because they've been laid off. They don't have the money. They you know, there's a recession, there's all kinds of reasons. Think back to 2007, 2008. When everybody was being laid off, everybody lost their job. Everybody was afraid. They had to cash out of the stock market because they needed the money. Everything was going crazy. But even think back to September 11, 2001. Market goes down. The worst thing could possibly happen. We’re attacked on our own homeland soil. But the market came back, everything cycles. Why? Because eventually you need that job back and you get that job back because the economy starts to grow again because things settle down, because the problems were solved, and that's just how it is. The ocean. The waves, they go in, they go out. Sometimes they're calm, sometimes they're rough, sometimes you can surf on them, sometimes you can lie and just float on them. That's like the economy but it's always there and the economy will always be here. So stop being paranoid about that. Are there other things possibly you could be paranoid? Yeah, but not about that. It's the same thing with your home. Are you paranoid to buy a piece of real estate? Oh it will go up in value. It will go down in value. In the meantime, you're living in it and it's providing you with shelter. You could buy individual stocks or even mutual funds that pay great dividend yields. So while the market is going up and going down, your money is living in a place that can pay you income, so you don't have to worry. So here's the bottom line. Get a grip, girlfriend. Get a grip. Remember the goal of money is for you to be secure. So if investing in the stock market truthfully makes you a nervous wreck. If you can't get over your paranoia, if you just feel totally insecure when investing, then just keep your money in a savings account or a cd or whatever. It's all right, because the goal of money is to make you feel secure. Got that? However, just, I still don't think you should be paranoid. All right. Next one is from Gina. Gina says, I love reading compliments to myself. Anyway. First, I want to let you know that your advice has changed my financial life. The only thing, however, that I'm still confused about is whether or not I need a living revocable trust. Here we go again. That right. I have all of the Must Have Documents in place except the trust. I know you have talked about this a million times. Oh, you betcha I have Gina! But I still don't fully understand why I need one. I'm wondering if others are also confused, so could you please explain why someone in my situation would need a trust? She then goes on to say she's divorced with no kids, no debt other than her mortgage, which will be paid for in three years. She has a 401K, a Roth IRA, investment accounts, her sister is her beneficiary on all her accounts. If I do need a trust, do I need to put my house and all of my accounts in the name of the trust instead of my own name? If so, how do I go about doing this? As always, your advice would be greatly appreciated. Thank you, Gina. Gina. There's more reasons that you need a living revocable trust than simply where you want to leave your assets upon your death. So forget about beneficiaries for a second. Let's talk about you, girlfriend. Gina, you're young, now everything's great. And the years pass by, your life is perfect. Nothing happens to you. And so therefore you're getting older, and older, and now you're 85, 90, maybe 95. And now your memory isn't quite as good. Maybe you've had a stroke. Maybe you get ill. Maybe from now until then you get in a car accident. And you no longer, can make decisions on your own. For whatever reason, you have become incapacitated. Who is going to pay your bills for you? Who is going to write your checks for you? Stop thinking that a living revocable trust is simply to make it easy as to where your assets are to go upon your death. Let's think about life. Life. If something happens to your life, what do you have in place that you know, that the banks and the financial institutions will accept if you are incapacitated. Sure, you might have a power of attorney for finances. But in most cases, the day that there is an incapacity, a power of attorney for finances become null and void. There are many financial institutions out there, even if you have the correct power of attorney for finances, one that springs into action when there's an incapacity, many financial institutions will not take it. Because why? They don't know if there's another little piece of paper that says that power of attorney is no longer in effect. When you have a living revocable trust with an incapacity clause in it, that says, who has to sign for you if you can't sign for yourself, the financial institutions know that that is a legal document, and they will accept it. That is the main reason that you really need a living revocable trust. Now, it is true, when you have a life insurance policy, when you name on a bank account a pay on death account, you make it a pay on death account, a beneficiary when you have your IRAs and you've named beneficiaries and all of that. Yeah, it will absolutely avoid probate no big deal. But sometimes, many of these forms only allow you to designate two beneficiaries. That's it, just two. And it is possible, and I think about this all the time when my family happens to fly over to the island. As I'm taping this, it's right around July fourth actually. And I have two planes, 14 members of my family coming to stay with us on the island. And the planes only hold eight people each. It's a little tiny plane. And I always think about this. Oh great, do we split up the families, what happens? It's possible. A plane can go down, and there are four or five of my beneficiaries all gone at once. Then what? I could be on that plane with them, and I have been. Then what? So I don't mean to be morbid here. But a living revocable trust can go down, down, down, down. Meaning if something happens to this person, it goes to that person, it goes to this person then it goes to that person, all the way down. So all of that can be taken care of for you. Gina, I hope this explains why you really need a living revocable trust. Oh right. You had another question. Sorry, I was gonna end that. If you have a home, a piece of real estate, the absolute best way to transfer it, and your bank accounts, is just put it in the title of the trust For your home, go to a title company, it will cost you a few bucks, under $100 I’m sure, to have the title transferred into your name, trustee for your trust. The banks, just go to the banks themselves and do that. Now in my own trust kit, that I have a feeling you have because you mentioned the Must Have Documents, there is paperwork in there that shows you exactly what you can send into your banks and everything to help you change the title of your assets into the title of the trust. Right now, we are finished, my dear Gina. Let's do one more. Hi Suze. I'm 33 years old. I've been with my company for six years and I dislike my job. I've been ready to leave for a long time, but I'm not sure what new career I would like to start. And I'm afraid to take out any more student loans for a graduate degree. I live in Sacramento, California and rent has risen so much that renting a one bedroom home would be about the same as purchasing a $200,000 home. I've started to think about buying a home, so I don't waste the same amount of money paying rent. I have about $15,000 in my savings, and I have an option through my employer to loan myself up to 50% of my $25,000 that's in my 401K. Is it a good decision to loan myself money from my 401K? Alright, Danielle, I need you to listen to me. You say that you hate your job. You go on and on in that email about how you really want to quit this job. And yet, you want to borrow money from the 401K at this job to be able to purchase a home. Are you nuts? If you borrow money from this 401K to purchase a home and then you quit this job, then that money has got to be paid back in most cases within a month, maybe six months of you leaving. If you don't have that money, in order to pay back that account, it will be taxable to you as ordinary income in that year, plus a 10% penalty because you're not a proper age to do this without penalty. So no, you're just putting yourself in a situation where you are trapping yourself to having to stay in that job. So why do you want to buy a home right now? Don't you want the freedom to be able to move anywhere you want to move in case you come up with an idea, and you then maybe or you find an occupation that you want to do that in another state or another city or who knows where? So, no, when you are in flux about your own life, when you're hating what you are doing, then don't spend money. And I know you say that your rent costs about as much as it is for you to have a mortgage payment on a $200,000 home. It's not just the mortgage payment. It is your property taxes. California has expensive property taxes. It's the insurance, it's earthquake territory. It's it's all of these things. Plus, you'd be borrowing the money, and then you owe that money back every single month. So not only then in figuring this out, is it just your mortgage payment being equivalent to your rent, it's your mortgage payment and your loan payment to pay back the 401K loan that you are not going to be taking out. Do you understand how you're not making sense? So, when you find yourself in flux, when you find yourself not really knowing what you should do, hating this, hating that, where should you go? Should you do this? Stop, stop. And do nothing. Do nothing. You've heard me say, it is better to do nothing than something you don't understand. What is it that you don't understand? You don't understand what you want to do with your life right now. So don't force yourself into a situation where you have to stay at this place that you hate, where you are spending more money than you have any idea, and then you end up going into credit card and no, do nothing. Do you hear me, girlfriend? Alright I think that's enough, don't you? I don't like it when there's so many questions and you have to listen, and listen and then your head starts to go but blehblehbleh. It's just too much for you. So I just like to give it to you in little doses. What I like best about the Ask Suze Anything podcast, is that you can go back to them, and you can listen over, and over again. And always pick up something that will keep you from making mistakes that you can't afford to make. I always say, that the biggest mistakes when it comes to your money that you will ever make, are the mistakes you don't even know that you are making. Like the one that we started with the very first one today from Joe, my smart man, who wanted to simply out of the goodness of his heart fund his grandson's 529 plan. And that would have hurt his grandson big time when it comes to financial aid. So listen over, and over, and over again. And if you stick with me, I'll stick with you. Until next Thursday you have a question, write into firstname.lastname@example.org. You just never know if I'll answer it, or not.
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