Financial Answers You Should Know About – Episode 209

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[00:03] Welcome to the prosperity podcast fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street Here’s your hosts best-selling author Kim DH Butler and no BS money guy Todd Strobel Everybody welcome back to the prosperity podcast. This is no BS money guy Todd Strobel. Once again We have our co-host and best-selling financial author Kim Butler with us today And I have been out looking around on the internet and of course one of the big names out there from the magazine days even what is Kiplinger magazine and Kiplinger has developed a test of your financial fluency Fluency, how about that? That’s it. I guess it maybe could be affluency. I Love alliteration. So okay financial fluency sounds fun

[01:01] Okay, so if anybody wants to check this out, you can go to kiplinger.com and take the test yourself But interestingly enough neither Kim or I have seen this so we’re gonna take it right now With you and hopefully we’ll all have some fun out of this. So here we go You all right, you saved $25,000 for a down payment on a house you plan to buy within one year Which of the following is the safest place to keep your money a under your mattress B stocks C bonds D bank savings account and because I know how you’re gonna answer this potentially E something else you might come up with Awesome, I love making up answers that don’t exist so absolutely a bank savings account and Letter E, which is one better than a bank savings account, but it’s gonna of course come with a qualifier is

[02:07] Absolutely cash value of life insurance and yet I want to be clear Well, first of all, I should be clear. It’s cash value of whole life insurance Not any other kind but I also want to be clear that if that’s all you had and that’s all You are gonna be able to work with then a one-year time frame is not a good Way to use the cash value of life insurance So you’d want to use life insurance if you had the ability to save some extra money on top of this 25,000 that you had like, you know three four or five hundred a month kind of thing and then you could absolutely put the 25 in with pay to petitions borrow against it and Use it for your down payment and then you would work on paying both your mortgage back and your quote down payment

[02:52] loan back That’s a loan from the life insurance company to you with their money While your 25,000 remains in your policy serving as collateral But again, that’s not gonna work if that’s all you have So we’ll just be good girl and go with D bank savings account Absolutely D makes a lot of sense and like you said the reason that the whole life insurance is a little more Difficult with the one-year time frame is that putting that money takes a couple few years To build up in the policy that way So did you you know a lot of times people want to put the money in and take it out literally the next day And I think there’s what a 12 it takes at least 12 months, isn’t it? Correct. Yeah, most dollars need to stay in 12 months super. All right, so we’re gonna go with D

[03:48] and Looks like we’re Scored one correctly All right. What’s the fastest and easiest way to boost your paycheck? Hey These are wonderful suck up to the boss Be get a second job or see adjust your tax withholding Those are my only choices sorry, that’s it. Okay, so I want to add one again my my new answer and you’re great Wonder always remind us to think this way is how about D add more value? To what you’re doing so that you are earning more you have the potential to earn more But never mind that we’ll take a look at ABC real quick and so I’m gonna go with yeah, you could go ahead and it was at C that would adjust your tax holdings and yet at the same time you’re gonna want to be very careful because if you are getting a

[04:47] Refund back on your return always surprises me how many people mix up those two words If you’re getting a refund back on your return, then absolutely you want to adjust your holdings because you don’t really want to refund That’s not a good way to quote save money Yet if you are not getting a refund and you adapt adjust your tax withholdings Then you are likely going to owe money in April when you follow your taxes of the following year That’s not a bad thing. You just need to be prepared for that So adjusting taxes to where you come out pretty even Steven is ideal and you can absolutely make that happen with help from your human resources department and Yet if you want to owe a little that’s not a bad thing

[05:34] I I don’t like the idea of getting a refund just because it basically means the government used your money for 12 to 18 months and didn’t give you a dime of interest on it, but I still want to add D add more value. That’s the way you increase your paycheck Super well since we don’t have a D. I put the C in and of course, we got that one, right? Okay And it just kind of does does kind of go into a little bit more detail Just reminding our listeners that the amount of exemptions that you claim has nothing to do with the number of Dependents that you have Yes, that’s a good distinction and this is a tough thing to learn about it I just am always surprised myself when I look through some of that information

[06:21] It takes a little bit of digging sometimes to understand all the descriptions and distinctions All right. Let’s try another one. What will help most toward building a good credit history or repairing a bad one a Pay bills on time and keep credit card balances low B limit applications for new credit and keep old accounts open are C sweet talk the credit card company phone rep Interesting we don’t have an all of the above No, no, no, no, no, no That’s actually gonna be hard to know. What’s the supposed correct answer? I guess I’m gonna go with a you know I did learn the other day and I was so surprised by this that Your credit card should really never be more than 30% Of your available balance. In other words, let’s say you have a thousand dollar credit limit. Sorry available limit

[07:22] I said balance that was confusing. You have a 30. Sorry. Okay, let’s try this again Your credit card Balance should never be more than 30% of your limit if you have a thousand dollar limit You really only ever want your balance to be at three hundred dollars because apparently and like I said This was news to me You have a risk of impeding your credit score the thing that should be above 700 or 720 ideally if you Use more than 30% of your credit card limit, which to me is crazy Why do you have a limit and then only be able to use 30% of it? But because of that knowledge, I’m gonna go with a Alright, I think I’m gonna probably agree with you there as well. Although I think Apple the applications thing is another way that you know

[08:22] When you apply for a loan There’s a time period that they assume you’re shopping for a car or you’re shopping for a mortgage or whatever and they really doesn’t Hurt you but if you’re continuously looking to refinance or something like that, I know those applications can be bad, too So yeah, I will support that knowledge and I will also say that leaving old Accounts open is good because of the history that’s on there as long as you are using them I think a mistake that a lot of people make is Maybe they get a store card and then another store card and then another store card and they’re not really using any of them And then they have their main sort of Visa MasterCard thing that they’re actually using

[09:06] And those other scorecard store cards are just hanging out there taking up space literally in other words If a mortgage broker looks at your credit, they’re gonna assume that you turn around and max out those Credit cards any day of the week because you actually can So you want to be careful with those older ones for sure Okay, I’m gonna Go along with that which investment offers the highest growth potential for your long-term goals a Treasury bonds B money market C stocks or D residential real estate Interesting so I know that they are gonna want to hear stocks and that was letter C, correct that is an option and so I am going to say that but this is one of those areas where I want to add my two cents because

[10:11] long-term growth in stocks is going to be accurate only as long as you can put up with the roller coaster ride of up and down and up and down and up and down and There is some good to that, you know people like stocks they like being involved in the stock market They like the idea of something for nothing like oh I could put a little bit in and all of a sudden the stock market takes off and now I have a lot Of money and that’s what we call growth and yet we need to be very very careful that we’re aware of what comes with that growth and One of the biggest things that often comes with it Especially when you’re doing your stocks inside a mutual fund environment are fees and then also the opportunity cost of those fees because fees are typically taken out every quarter or at least every year and

[10:59] Then obviously that money is no longer earning So that’s what opportunity cost is and those things can be very very detrimental to the growth of money Now if you’re just buying an individual stock and holding onto it and letting it grow you’re not gonna have the fees But you’re also gonna have probably a lot bigger roller coaster ride So I’ll just throw out that we really like alternative things different things to have our money grow and our clients money grow and our favorite asset for growth is something called senior life settlements which tend to Grow and not roller coaster ride. So if anybody is interested in information on that They should send us an email to hello at partners number four

[11:46] Prosperity calm and we’ll send them some information so that they can learn a little bit about it. All right next question You are unemployed single childless in good health and drive a clunker which insurance could you most likely do without a life insurance B health insurance or C Auto insurance Well, of course the answer is life insurance and so we’ll just add or two cents in that there’s a difference between needing life insurance, which clearly this person does not and Wanting life insurance because you can use whole life insurance is a good place to store cash and so this person does not need it, but they might want it and I’ll just say the same thing if you’re hearing this for the first time and interested in information, then let us know

[12:44] We’ll send it to you. Hello at partners number four prosperity calm Which of these accounts or products is protected by the federal government against loss a a 401k B a 529 plan C municipal bonds D certificate of deposit or E none of the none of the above Absolutely good for them. They have E which is none of the above the sentence read protected by the government Against loss and so there’s two challenges with that and this is something that a lot of people are aware of and many Many people are not and that is that the federal deposit insurance corporation Is a FDIC a An entity I’m gonna use that word out there that a lot of people is federal in other words like the federal government And it’s not and a lot of people also assume that it’s insurance

[13:51] ie protecting against loss and it does not So what an awesome question that they asked. Absolutely. The answer is E none of the above unfortunately They say the answer is D You are kidding me They say that a certificate of deposit a bank CD falls under federal protection If it’s FDIC insured that means up to 25 $250,000 is protected in case a bank goes under and you get up to 250,000 of insurance at each bank You buy CDs Wow. Well, I’m disappointed in them They should know better they I can see why they’re saying what they’re saying because Yes, there is an agreement of the taxpayers to Make payments when a bank goes under To people that had assets at that bank, but that is not insuring it against loss and is not a federal entity

[14:55] so This is just an example of where the press doesn’t always know the whole truth I Would say it’s a great question that depending on how you’re interpreting the question you could answer either way. Yes, very interesting. So That just kind of shows you that how confusing the financial markets are out there. I mean, that’s very yes Ashley age 20 Contributes $3,000 per year to an individual retirement account for ten years then stops Letting her money sit in the account Adam age 30 contributes 3,000 each year to an IRA for 35 years Who will have more money at age 65? Assuming they get identical investment returns So the answer is actually I know that without having to run the math and it is surprising you think oh my gosh

[15:53] Ten years of contributions and then nothing but the key to that was that they were early often and So very opposite of our go-slow start small Recommendation that we make all the time when people are looking at our investments This is contribute early and contribute often and so yes That’s a fabulous thing to do if you’re young and you’ve got a little bit of extra money save it save it save it Whether it’s in an IRA wouldn’t be my most favorite place But frankly the act and the verb of saving is way more important than the noun of where you put it The savings account the IRA the life insurance policy, etc, etc So yeah, Ashley’s gonna have a lot more money than Adam because she Started early and contributed often

[16:41] Absolutely, correct. That’s a that was a good question. I like that one Yeah, what does not affect your auto insurance rates a your credit score Be your car make and model see your car color or D your address Hmm I’m gonna go with car color even though that’s the first question I always have when people tell me they get a new car. Well, what color is it? But yeah color doesn’t matter and it is interesting to bring up that credit score. Absolutely does In fact credit score is starting to impact more and more things these days So it’s definitely something that people want to pay attention to and of course address does and make and model I remember when I was fairly young I’d had a couple cars and I I had a little extra money and I was looking

[17:31] at getting a sports car of some sort and Somebody suggested to me that I check how much it was gonna be to ensure it I was shocked at the difference from my totally nice sort of four-door sedan thing that I’d had To this little peppy sports car. It was quite a noticeable difference in the cost to ensure it So that’s definitely something worth checking out Big difference in ensuring the boys versus the girls, too Yeah, especially when they’re younger absolutely When do children need to file a tax return a at age 16? B at age 18 C when they get their first job or D when their income reaches certain levels It is D when your income reaches certain levels. I want to say it’s around 6,000 give or take I don’t want to be quoted on that even though I just said it on the podcast

[18:34] But I think that’s the amount so it really doesn’t matter what age you are. I mean you could be 25 You could be 15. It’s irrelevant But it’s the amount of money and if there’s a certain amount of money that you are Earning then a return must be filed now you can still offset a lot of that earnings through your own personal exemption and Depending on how you’re paid possibly additional deductions against that income, but the return must still be filed Got it. And for those of us who have owned businesses This is a great opportunity to maybe pay your children to help do some things for your business and then they can learn how to manage money and You can write off the income that you pay them as an expense of your business, correct?

[19:23] Absolutely. It’s a great strategy to use and Helpful to everybody gets the kid learning how to handle things It helps them and be involved in the filing of a tax return It helps them understand how taxes are dealt with and wages a whole bunch of good there in addition to as you said for the parent the deductibility and Some involvement with the kid in the business You can withdraw Contributions you made to a Roth IRA at any time for any purpose Without paying any taxes or penalties and without having to pay it back ever True or false True. So this is your own money. It was put in after tax anyway And now as indicated there you can withdraw it out You cannot withdraw out any earnings that that money the growth that that money created

[20:21] But the actual dollars that were yours that were already after tax Can without any date? Specifications be withdrawn and that is a handy thing and probably something that a lot of people are not aware of you know We actually have a couple podcasts out there. I think if you look on taking a Traditional IRA and converting it to a Roth IRA if you’re really in the situation where that might benefit you It’s kind of a technical question, but one worth looking into if you meet the requirements to do that Absolutely, and I’ll just say too that a Roth IRA can have some benefits without a doubt However, it’s not generally my favored first thing for people to contribute to because the growth is locked up till 59 and a half and

[21:08] There are other things that can get you the same tax law. So this is after-tax money going in Growing then without being taxed and coming out completely tax-free There are other things that can accomplish that and yet not hold the growth hostage until you’re 59 and a half so Something worth checking out if this is an area for you You’ve got a little bit of extra money that could be saved you kind of like that tax law You should take a look at the Roth IRA tax law, but then also the life insurance tax law Which does the same thing? One other note to make and that is that the Roth IRA tax law is only half the story You still need to decide what you’re going to invest that money in And so we have a variety of places that are fabulous for Roth IRA type money or a regular IRA type money

[22:06] that will provide really good growth while you’re in that phase of your financial life and Then other ones that provide fabulous monthly income while you’re in that phase of your financial life So again questions. Hello at partners number four prosperity our special email just for our podcast listeners. Happy to help Thank you for listening to the prosperity podcast to take control of your money and have it work for you Visit us at partners for prosperity com if you liked this episode make sure you subscribe and leave a review