We get a lot of great questions from listeners and readers. And if one of you asks a question, dozens of other people have the same question. In order to reach you all, we like to do five questions episodes. So here they are, five awesome questions from you!
Is there such a thing as being too frugal, Betterment or Vanguard, how can you save money in college, what should you do with an IRA, where should your emergency fund live? We’re going to find out.
Subscribe to the Show:
I just discovered your podcast yesterday and have been bingeing it at work ever since. A little about me, I’m a recently graduated 23-year old that just got my first full-time job four months ago.
I’m really into budgeting and keep track of every dollar I spend in an effort to save money in case of a surprise expense (medical bills, lawsuit, car accident, accidental child (lol), etc.). I wanted to pick your brains about a few things because I feel conflicted about my spending.
- I spend as little as possible, I now go out maybe twice a month, and feel guilty about it after. I stopped buying things that I enjoy consuming as well. I hate “impulse buying” because I did that a lot in college and I would always feel stressed about the lack of funds in my account. My question for you guys is how do you decide what to buy and spend money on and what is your justification every time you pull out your wallet for non-essentials?
- Sometimes I feel like my frugality caused stress in my relationship. You guys are both married or have girlfriends from what I heard on your show, how do you balance being frugal and showing your significant others a good time?
Hope to hear back from you, keep making awesome content.
Are you paying yourself first; maxing out your 401k if your employer offers one, investing with Betterment, do you have an IRA? Do you have credit card or student loan debt? Do you have an emergency fund?
If you answered yes, no, yes, relax! The level of angst you have surrounding money is understandable in people who answered no, yes, no but if you have a solid grasp on your finances, you shouldn’t be this stressed out.
Life would be pretty grim if we only worked to spend money on essentials. What is the point of working hard if you don’t get some pleasure out of the money you worked so hard to earn?
We can understand your fear of impulse spending because you’ve had a problem with that before. An easy way to address that is to write down any purchase you would consider an impulse buy or over a specific dollar amount on a 30-day list. If you still want the item after 30 days, it’s not an impulse buy.
Figure out what your spending priorities are. Some people don’t care so much about fashion and are happy with clothes from Target but absolutely must have the latest iPhone. Fair enough. You can have more of some and less of something else. More iPhones and fewer clothes.
Romantic partners, those worth having anyway, won’t mind frugality but no one likes a miser. You can be frugal but don’t be cheap. Most people won’t object if you choose a flight with a stopover for your vacation because it’s $100 less expensive than a direct flight. But most people will object to a 24-hour Greyhound ride because it’s even cheaper than flying non-direct!
You also don’t have to spend a lot or any money to have a fun date. We wrote an article that will give you 16 fun, cheap date ideas. There is not a correlation between fund had and money spent.
There is not a correlation between fund had and money spent.Tweet This
I’ve been listening to your podcasts for a week, and you guys are really helpful, thank you!!! I have a question on short-term investments. What is the best way to invest money I want to use to buy a home within five years?
I have signed for Betterment, and I am also looking into Vanguard. Do you think it is better to invest it into Betterment or Vanguard?
We like Betterment and Vanguard. If you have at least $10,000 to invest, Vanguard’s Total Stock Market Index Fund ETF has a meager fee of just 0.04%. Betterment has a higher fee of 0.25% which is higher than Vanguard but still very low, and Betterment doesn’t have a minimum.
That said, five years is too short a time horizon to invest money. None of us can predict the future and what if just when you needed that money, the market bottomed out? If you need it that soon, it’s better to park it somewhere ultra safe like a money market account or CD.
If you can be flexible with your time horizon, in five years the market does tank just as you were ready to buy a house, so you wait two more years, and things bounce back, then it’s okay to invest that money.
Get our best money lessons:
Hey, my name is Lucas, and I’m a freshman in college (in Spain), and I’ve been following Thomas for a couple of years now, and just recently I started listening to this podcast.
I personally am very interested in student money problems and would love to hear more about budgeting and saving money while in college.
Also, I’d like to just send my support and appreciation for all the useful tips, on CIG and also on Listen Money Matters.
Muchas Gracias amigos!😊😊😊
Budgeting in college is just budgeting. You do need to factor in non-monthly significant expenses like next semester’s textbooks but those not in college have to do the same thing for things like holiday spending and property taxes.
The best way to save money in college (and after) is to avoid student loans as much as possible. When you’re 18 years old, you may not understand what you’re doing when you take out tens of thousands of dollars in student loans and may not understand the impact that will have after graduation, sometimes for decades after graduation.
There are lots of ways to avoid student loan debt; work full time for a year or two before starting college and save your salary to pay for it, take fewer classes so you have time to work a part-time job, live at home to avoid the additional cost of living expenses, go to a community college for two years and then transfer to a traditional college, or best of all, get people to give you free money.
There are hundreds, maybe thousands of grants and scholarships that go unrewarded because no one applies for them. Everyone goes after the big name, significant money scholarships but not everyone is a 4.0 student who plays an instrument and volunteers in their free time.
Not to worry, there are plenty of grants and scholarships out there for us lesser mortals. Start looking for them using concentric circles, start very close to home and work your way out. Are there organizations in your town and state that provide scholarships? Are there hobbies or activities you participate in that have scholarships associated with them?
All of these may not offer significant money, but there is no limit on how many you can apply for, and lots of small dollar amounts can add up. Applying for grants and scholarships is a lot like applying for a job, you have to customize each application, essay or whatever else is required a little but by and large, you can send the same stuff out to more than one organization.
If it’s too late and you’ve already graduated with student loan debt, refinancing can save you thousands over the life of the low. Check out LendKey. They can refinance your loans to get you a lower interest rate.
So you guys have changed my entire outlook on money and life and things. THANK YOU. I have been obsessively listening to your podcasts. I have been actively selling everything in my life I don’t need, and I am ready to open a Betterment account (deposit all that “stuff” money).
My big question is, do I take my traditional IRA and invest it? I know I will be taxed but is the return on investment (possible return) worth it in the big picture? I have $14,000 in savings and about $11,000 in my IRA. Any advice is helpful!
Selling unnecessary stuff is a great money move. Things cost money; you need a place to store it when you have too much stuff you forget what you bought, or you can’t find it when you need it, so you have to buy another one. And stuff is psychologically costly. Living in clutter is not good for your state of mind.
Your IRA is itself an investment, but it may not be the best investment. If you’re not happy with your IRA, you can cash it out and invest the money elsewhere. The company will send you or sometimes, the new investment platform, a check. As long as the money is rolled over to another IRA account within 60 days, there is no penalty.
Betterment can walk you through the process.
Just getting started…….
Helloooo Thomas and Andrew!!!
I love, love, love your podcast!!! I’m in my early 40’s and just now getting my shit together when it comes to finances (sigh). I was listening to today’s podcast, Invest or Payoff Debt? That is the Question, and it made me think about my financial priorities a little more deeply.
I have zero credit card debt, one car loan, a mortgage and a wedding that I am saving money for. I want to start knocking out my car loan, but after listening to today’s podcast, I’m wondering if I need to build up my safety net since what little money I have is now tied up in investments.
I have about $5,300 in investments and $500 in my savings account for the random vet, car, house needs that might come along. I put the $5,300 in a guided investment account with Merrill Edge so that I would not be tempted to touch it and I wanted it to earn more than a .01% savings account. Should I have not invested my safety net??
First things first, $500 is not enough for an emergency fund. Ideally, an emergency fund contains six months of bare-bones expenses; enough to cover the necessities like rent or mortgage, utilities, food, etc. Three months is not six months but isn’t too bad, but the absolute minimum you should have for an emergency is $1,000.
Now we get into the weeds. Ages ago, we suggested that your emergency fund should be invested, especially if you have six months of expenses saved. That’s a lot of money to be languishing in a checking or savings account losing value because the miserly .01% interest rate doesn’t protect against inflation which has an average rate of 3%.
We were pilloried for it. People felt that an emergency fund should be somewhere 100% safe like a checking or savings account. So we came up with a compromise solution. You should still invest your emergency fund, but you can set the risk level to a more conservative level than you would set your regular investments at.
We are comfortable at a 50/50 split between stocks and bonds, but you do what makes you comfortable. Even 10/90 is better than sticking your money in a checking or savings account.
Thanks, guys! We love to answer questions so keep sending them in!
Tool Box: All the best stuff to manage your money.
Simple Wealth: Research and evaluate rental properties.