Latest / The Personal Finance Club Show / Renting vs. Buying, Credit Scores, and The Gift Tax | Ep 7

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Renting vs. Buying, Credit Scores, and The Gift Tax | Ep 7 · The Personal Finance Club Show

0:12
Welcome back to the Personal Finance Club show.
0:15
Hey, Jen, how's it going? I'm fantastic.
0:17
How are you, Jeremy? Great.
0:19
So on your TikTok, you just asked a very interesting
0:22
question that never occurred to me.
0:25
What did you ask that? And it's, and it's like, you
0:27
know, I want to call it viral, but it's, it's, it's sort of a
0:30
little bit of a little bit of controversy.
0:32
What'd you ask on this TikTok? Question for white people, when
0:36
you go to pick up an order from a local establishment, do they
0:43
ever ask you if you are like a DoorDash or Seamless or Grubhub
0:49
driver? Or if you're going to like
0:52
Walmart or the grocery store, do they ever ask you if it's
0:56
Instacart when you get to the front?
0:59
Because this is one of those things that I feel like it's
1:01
like being followed in a store and you can't prove it's racist,
1:05
but you know they're following you because you're black.
1:09
I'm wondering because I'm like, did they do y'all get asked
1:13
because I'm like why? What is it about me that you
1:15
made you assume no shade to a a delivery driver?
1:18
But why am I being asked if this is for me or for another
1:21
customer? Like why couldn't I be picking
1:25
up a little green smoothie at 10 AMI can't have a smoothie.
1:31
I don't understand. I just want to try enjoy my
1:34
little drink. Yeah viral in like my normal
1:36
TikTok when I post music it's 4 1/2 views and this one got like
1:40
thousands. I went to a local smoothie shop
1:43
in my neighborhood to pick up a smoothie yesterday morning
1:47
because I needed to go grocery shopping and I hadn't.
1:49
And I was seamless saying slash door dashing instead.
1:54
And I walked in and I tried. I said I'm picking up an order
1:58
for Jen. And they said are you DoorDash
2:03
or are you whatever? And I said no, this is for me.
2:06
And I was curious because I don't know if white people are
2:10
asked that same thing when they walk into us an establishment.
2:14
And so I made a video and I asked, does anybody have this
2:18
experience? And thousands of white people
2:20
said I've never been asked that before.
2:23
I didn't even know anyone was asked that.
2:25
I like, I've seen, you know, door dashers in restaurants and
2:30
grocery stores, whatever. And I just thought they
2:33
announced themselves or the restaurants didn't care who is
2:35
who. And so, yeah, as a, as a white
2:38
person, I was for sure like I was like, Oh no, no one ever
2:40
asked me that. And so, yeah.
2:42
But now I'm, you know, now the question is like, like, is this
2:45
an unconscious bias of these restaurant?
2:48
And so I guess to be clear, you're not a Doordasher, right?
2:51
I'm not a Doordasher. And this is this is I was
2:53
telling Jeremy earlier, this is probably the fourth time this
2:56
has happened to me. And it's happened to me in
2:58
grocery stores at other like restaurants.
3:01
So this was the first time I was like, man, this feels like a
3:04
pattern. Let me ask if anybody else has
3:06
this experience. And I did say earlier that I had
3:10
my phone in my hand, but it's 2025, we all always have in LA.
3:14
With a phone in your hand like. Exactly.
3:16
And then I was, I had started to ask my question myself,
3:18
questions about what I was wearing.
3:19
But once again, we're in LA, we're all wearing athleisure.
3:22
I was wearing like a black sweater.
3:25
Like there's no DoorDash uniform.
3:26
You just go out and what you're wearing and there's no LA
3:28
uniform, Right. So I just started to think, is
3:32
this the thing that happened to other people?
3:34
And thousands of comments said no.
3:37
And I, I'm curious if it happens to other black people, though,
3:41
because like it, you know, or is it something about you
3:43
specifically? And you, you said, you know,
3:46
this, I'm picking up an order for Jen.
3:48
You kind of refer to yourself in the third person there like, but
3:51
obviously you have to because they don't know what your name
3:53
is. Like I'm picking up an order for
3:55
me, Jen. Like no one says that, right?
3:58
So, yeah, it it sounds and I do think that it's probably not
4:02
something malicious being done by the restaurants and not like
4:05
like, oh, I'm going to accuse this girl of being a Door Dasher
4:08
when she's not, but. I preface in the video, there's
4:11
nothing wrong with being a Door Dasher, but I just wonder if
4:15
it's something that's made an assumption that's made that
4:17
wouldn't necessarily be made with other races or genders or
4:20
whatever it may be. Yeah.
4:21
So if you're out there and you want an establishment, check
4:25
yourself. And if it's happened to you, hit
4:27
us up with your story. Maybe we can include a a follow
4:30
up in a future episode. OK.
4:32
So let's get into our first segment.
4:37
Explain it like I'm 5. The day this episode comes out
4:41
will be the day before Halloween.
4:42
So I picked a spooky topic. What is a credit score and does
4:46
it matter? Spooky credit scores debt.
4:50
I think I can explain this one like I'm 5 because not like I'm
4:53
5 no, I can definitely explain like I'm five.
4:56
I think I explained everything like I'm 5, but I can explain it
4:58
like you're 5. We'll see.
5:02
When you operate in the world of borrowing money, credit cards,
5:08
mortgages, student loans, there is essentially a permanent
5:12
record of you that's kept. And the analogy I'm going to
5:16
make is this is like getting a grade in school and you're just
5:21
like, you have a permanent record in school, and if you do
5:23
something bad, it's on your permanent record.
5:25
You have a permanent borrowing record.
5:28
And this record keeps things like your credit accounts, your
5:32
balances, your payment history, how many times you've had credit
5:36
inquiries like applied for new loans, public records, things
5:41
like bankruptcies, judgments and collections.
5:43
And it's just in this like huge, massive list as called your
5:46
credit report. And it's kept on all of us that
5:49
essentially have a Social Social Security number in the US And
5:53
it's like this big. It's actually free.
5:55
You can pull up your credit report for
5:58
freebylaw@annualcreditreport.com. This is not a plug.
6:02
There is no plug. It's a free government website
6:04
that you know is not to be confused as the other ones, but
6:07
should you should never pay for your credit report.
6:09
It's basically this big gigantic list of all this stuff about
6:12
you. And back in the day like the mid
6:16
50s when lenders like banks were like lending money, it was a
6:21
kind of a chaotic experience. They'd someone would walk in,
6:24
they wouldn't know this person. They'd try to analyze them and
6:27
say, are you good or are you bad?
6:29
And we kind of already broke the topic of race, this, this, this
6:33
episode. And you can imagine some people
6:35
who had different colour skin, some bankers maybe didn't think
6:38
they were as good of borrowers. And so the concept of a grade A
6:44
score was applied by basically processing all this information
6:49
in your credit report and looking at 5 topics to give you
6:52
a number score between 300 and 850.
6:57
Why 300 and 8:50? I have no idea actually.
6:59
Maybe I should have looked up this episode.
7:00
But it's, it's like these silly arbitrary numbers.
7:03
I think it should be between like zero and 100.
7:05
So if you have 8:50, that's like you're the best, like
7:07
theoretical best human borrower, and 300, that's like you're the
7:11
worst borrower. It was designed to give banks an
7:13
easy, fast, less subjective way to identify what's going to make
7:19
them the most money, IE is this person going to pay back the
7:22
loan or not? That's what the credit score is.
7:25
And looks at these five things #135% of your credit score is
7:28
made-up of your payment history. Basically.
7:31
Have you made your payments on time in the past?
7:33
That's 35%. The biggest amount, 30%, is your
7:38
amounts owed or your credit utilization.
7:40
So, for example, if you have three credit cards with $1000
7:44
limit each for a total of $3000 available credit and you're
7:48
maxed out all of them, that's going to hurt your score.
7:50
If you have $3000 of debt and a $30,000 credit limit, your
7:55
utilization isn't 100%, it's at 10%.
7:58
That's going to be much better for your credit score.
8:00
That's your milestone. The third one is 15% is the
8:04
length of your credit history. If you're 18 and you've had a
8:07
credit card for two months, doesn't hurt your score.
8:10
If you're 50 and you've had a credit card for 30 years, that's
8:13
going to help your score. 10% is credit mix.
8:16
That's basically the different types of loans you have.
8:19
If you only have one credit card, that's all you've ever
8:21
had, you've never had any other loan, that's going to hurt your
8:24
score. If you have a credit card and an
8:26
auto loan and a student loan and a mortgage and you've been like
8:29
merely paying these back on time the entire time, that's going to
8:33
help your score. And the final one is new credit
8:36
or new credit inquiries. Basically in the past, recent
8:41
history, the last month or few months, have you gotten a bunch
8:43
of new credit that's going to hurt your score?
8:46
Basically that's saying if you, you know, got 7 new credit cards
8:50
all at once and you're about to like dramatically change your,
8:53
you know, historical behavior, that's going to hurt your score.
8:55
And so it's just those basically processing that big credit
8:59
report, your permanent record to give you a grade just like you
9:02
get in school an A through an F or in this case an 850 through a
9:05
300 just to give banks number. That's what it is why it exists.
9:09
My opinion on credit scores is it's really a tool for banks to
9:14
be more profitable. It's not a tool for you.
9:17
The only reason it exists is to make banks lives easier and
9:20
faster and make it more profitable.
9:21
I guess there's an argument for it to be less subjective, which
9:23
I think is good for consumers. But if you're not, if you're not
9:27
focused on borrowing money, if you're not getting a loans, a
9:32
credit score means almost nothing to you.
9:35
And I think because we are conditioned as students our
9:43
whole lives, our whole formative years to get good grades, when
9:47
we grow up and realize these big government and financial
9:52
entities have given us a grade, we just get obsessed with it and
9:56
say, OK, I need to get a good grade.
9:57
But it doesn't matter if you're not borrowing money.
10:00
And if, and it only matters a little bit when you are
10:02
borrowing money, if you have like a terrible credit score
10:04
because you never pay back all your loans, that's going to be a
10:07
problem. People aren't going to want to
10:08
give you money. But if you have like a 760 or
10:10
780 or an 800 or a 750, you know, if it's in the good to
10:13
great range, that probably isn't going to matter much if at all.
10:18
You know, my own personal story is I have rarely borrowed money
10:22
in my life. I didn't have student loans.
10:24
I was very fortunate to have an athletic scholarship and help
10:27
for my parents to get me through college.
10:30
I don't borrow money for cars. I didn't own a home until I was
10:35
38. And when I did buy a home, I
10:37
paid for it in cash with no mortgage.
10:39
And so my my credit mix portion of my credit score is very bad.
10:45
It's like a couple of credit cards that I've had for a long
10:48
time. That's it.
10:49
But the rest of it is very good because I have high limits on my
10:51
credit cards and I and I don't carry a balance.
10:55
I pay it off in full every single month.
10:57
Never ever carry any ongoing balance.
11:00
So I, you know, owe very little. I have great payment history.
11:02
I have a long credit history and I have very few credit
11:05
inquiries. So the other 90% everything but
11:07
the credit mix is very good and my credit score was hovering
11:10
around, you know, 780 or 790. I finally did get a mortgage
11:15
about a year ago and that actually helped my credit score,
11:18
even though now I owe half $1,000,000.
11:21
Now lenders like like me more 'cause I'm a better borrower or
11:24
whatever. And so now my credit score I
11:26
think is around low 8 hundreds, like 8 O two or eight O 5 or
11:28
something. And it'll probably slowly
11:30
improve as that mortgage ages as well.
11:34
And guess what? Even though that was my very
11:37
simple strategy, I always keep my oldest credit card that
11:40
doesn't have a annual fee and then my newest credit card I
11:45
just use whatever one I like that has good points or
11:48
whatever. I don't really get too obsessed
11:49
with it. Like those two credit cards, pay
11:51
them off in full every month and then every once in a while
11:53
request a credit limit increase to have my utilization percent
11:57
be as low as possible. That's my whole strategy.
12:00
And I had, you know, an excellent score and had no
12:03
credit problems ever. You know, there aren't some
12:05
people will say, oh, there's lots of things you need a credit
12:07
score outside of borrowing money.
12:09
There are maybe a few other things like insurance, renting,
12:13
employment security clearances that might be able to look at
12:16
your credit score. Maybe, maybe not.
12:18
But still, if it's like, you know, as long as it's not like
12:21
400 or 500, like you've been like recklessly stealing money
12:24
from banks and not paying it back, you're going to be fine.
12:27
And so I like my general advice is don't be obsessed with your
12:30
credit score. Just do the simple things, pay
12:32
your loans back on time. I would be obsessed with your
12:35
net worth score. Basically, how much money do you
12:37
have? All the money you own minus all
12:40
the money you owe. And the less money you owe, the
12:43
higher your net worth because you don't own people as much
12:46
money. And so if you focus on that,
12:47
that's what actually being rich is.
12:48
And so spooky, Jen, Is it spooky enough for Halloween?
12:53
You made it less spooky, so it's not quite so scary anymore and
12:58
you did a really good job of breaking it down.
13:00
Five. I don't know, but good job.
13:03
And one thing I I noticed about credit cards in your statement
13:08
is that it'll tell you how long it takes to pay off a credit
13:13
card. Credit cards I think are very
13:14
like predatory in general. That's crazy.
13:17
But, and I don't know when this law came about, but that's why
13:19
these laws are important because they'll tell you how long it'll
13:21
take you to pay off if you pay off only the minimum.
13:23
And it'll be like 20 something years if you're paying like the
13:26
$200 a month or whatever it may, because they'll let you pay $200
13:29
a month and just let you keep like owing forever and ever.
13:33
And I think that those, those confusing aspects of having a
13:36
credit card, they feed into your credit score.
13:42
And also, even when you broke down the mix of what actually
13:45
contributes to your credit score, I don't know how many
13:47
people actually know that. So they might just be making
13:50
silly mistakes. And if even you breaking down
13:52
your credit score, why would you not have a perfect credit score?
13:54
I guess you said credit mix, but it feels like you are somebody
13:58
who should have a perfect credit score, but you don't.
14:00
So that kind of can tell you that a millionaire who's always
14:03
paid off everything in full and hasn't really owed anything
14:05
doesn't have an 850. It can like give you a little
14:08
bit of insight of how predatory that score is, you know?
14:10
Totally. Yeah, totally.
14:11
And you're right, it encourages people just like you said,
14:15
credit card companies love if you make the minimum payment and
14:18
just pay them that 20% interest forever.
14:20
You know, my rule of credit cards is if you don't treat it
14:23
like a debit card or you pay it off in full 100% every month,
14:28
cut it up. You know, it's so dangerous to
14:32
balloon. You know, we talked about the
14:34
power of compound growth. You can get 10% per year on your
14:37
investments. Over time you can become a multi
14:40
million. It's wild.
14:41
And then if you can get 11% when you start like playing with
14:43
these investment calculators and you go from like 10% to 11% to
14:46
12%, it gets wild. You know, 1% better returns like
14:51
dramatically gives you more money.
14:53
And so let me think about owing money.
14:54
And you're not, you're not paying 5% or 6% or 10%, you're
14:58
paying like 22.9%. Or 29.9.
15:01
Percent, like they're just bananas numbers.
15:03
And so I'd say like the the worst thing you can do in the
15:06
personal finance world is not pay a credit card off in full.
15:09
That is like you are in crippling danger if you're in
15:12
that territory. And that's like your number one
15:14
priority is like crush that credit card debt.
15:16
Do anything you can like beg, borrow, you know, not steal.
15:20
I should be committing crimes here, but, you know, work
15:25
overtime, sell stuff, whatever it is, get out of that credit
15:27
card debt because that is like a devastating financial position
15:31
to be in, to try to be clawing yourself out of this -29%
15:35
interest. And like you said, if you're
15:36
paying the minimum, that's like a, you know, a 20 year death
15:40
sentence. I'm assuming $10,000.
15:44
That's crazy, assuming you never put another charge in your card,
15:47
right? Like and that's not how real
15:48
life works. Real life works like this.
15:50
Out of control ballooning of it. And so you really want to get
15:53
back into the payoff and full 100% every month or cut them up
15:56
and just live, you know, a cash debit card life.
15:59
Yeah, All right, cool. You hear that, five year olds?
16:02
Pay it off. You hear that?
16:02
Five year olds get out. Leave to kindergarten.
16:05
Come learn about your credit scores.
16:07
Your parents will be very happy. Exactly.
16:09
OK. Shall we move on to our next
16:10
segment? Let's do it.
16:14
Can I ask a dumb one? OK, everybody's getting really
16:19
good at making nice succinct statements every week.
16:24
So this one comes from Ben. Ben asks.
16:26
Not sure if you have read Bill Perkins Die with a 0 or not, but
16:30
my wife and I were inspired to plan to give the majority of our
16:33
inheritance to our children, now one in three years old, when
16:36
they are around 30 years old, as it will be most useful to them
16:39
at this point in their lives. What type of account or giving
16:42
method would be most tax efficient for giving them a
16:44
large sum of money all at once, Jeremy.
16:48
Love this question have red dial with 0.
16:51
Also love that book. The basic premise of that book
16:54
is in addition to this amazing mathematical power of compound
17:00
growth that gets better with time, a human's life kind of and
17:04
their health kind of decays with time.
17:07
And so don't forget to balance those things.
17:09
You know, while it's good to save and compound for decades,
17:13
don't wait till you're 80 to have some fun because you might
17:17
not want to go skydiving when you're 80, but you might when
17:19
you're 40 or whatever it is. And he also translates that to
17:23
inheritances. Most inheritances is kind of
17:26
bounced from like people in their 80s to people in their
17:29
60s. And so you die in your 80s and
17:32
you get it in your 60s and then and then so it bounces through
17:34
the generations. And, you know, people in their
17:37
60s kind of aren't starting families and buying their first
17:41
home and, you know, try and take a family vacation with their
17:44
young kids and these like really important meaningful moves in
17:47
their life. And so Ben very astutely says,
17:52
hey, I've taken that lesson to heart.
17:55
I'm not going to wait till I die.
17:56
I'm going to give it away when I'm when my kids are 30, when
17:59
they are in that like very formative young adult family
18:04
growth, home purchase period of the life, which I love.
18:08
Love it, Ben. So you're crushing.
18:09
OK, so I have good news and bad news, Ben.
18:12
The good news is what a lot of people worry about with this
18:15
question is the gift tax. Oh, if I give a bunch of money
18:19
to my kids, I'm going to get here with the gift tax.
18:21
And I asked you this before, Jen.
18:22
I'm going to see if you know the answer because it's the second
18:24
time on this podcast. And now you go.
18:28
I think you got it right last time though.
18:29
Halloween episode spooky. There is, I know spooky.
18:32
I'm like going to ask you again. There's a, there's a certain
18:35
amount of money under which you can gift and pay 0 tax on that
18:41
amount of money. And it's a lifetime exemption.
18:43
So it's cumulative over the time of your over the portion of your
18:46
life. And so whether you gift it while
18:47
you're live or it's transfers as part of your state after you
18:52
die, how much money can you give to your kids or your
18:55
beneficiaries and pay $0.00 in tax on it?
19:00
And this is different from the 13 million that we talked about.
19:03
No, it is the 13 million. It is so oh so I nailed it.
19:06
Yeah, you nailed it. It's 13.99 million.
19:08
So you're only off by $990,000. But what's 1,000,000 bucks
19:12
between friends? But the point is it's it's about
19:17
$14 million this year, in 2025, next year and beyond it goes to
19:21
$15 million. And so by the time you listen to
19:23
this, it might be 2026. And As for one person, if you're
19:27
a married couple, you can double it.
19:28
So it's actually $30 million. And so basically, you know, to
19:32
Ben, you can, you can give your kids literally because it'll be
19:36
beyond 2026. You know, we can't count on that
19:38
because we don't know what the future's going to hold.
19:39
But if that's going to change. But as of 2026 tax law, you can
19:43
give your kids $30 million in cash.
19:46
Like if you have $30 million in cash in your checking account,
19:49
you can transfer to their checking account with the one
19:51
wire transfer file a form with the government says I just give
19:54
my kids $30 million and say good for you, $0.00 in tax owed.
19:58
If you're above that, you're not listening to the wrong podcasts.
20:01
You should be donating those podcasts and be a benefactor,
20:04
not a question asker. OK, so that's the good news is
20:08
that you you very likely don't have to worry about the gift tax
20:10
because it's a large amount of money.
20:12
But what you might be asking is, OK, I'm going to use the amazing
20:16
power of compound growth and investing from the time my kids
20:19
are one in three years old until the time they're 30, about 30
20:23
years. For the sake of round numbers.
20:26
What about taxing that? And so just to give you an
20:28
example, if you invest $500 a month, put it into a regular old
20:34
brokerage account for your kids and you get a 10% rate of return
20:38
in 30 years, that 500 bucks a month will grow to about $1.13
20:43
million, which is the amazing part of investing.
20:47
You know, you've turned your 500 bucks a month into 1,000,000
20:49
bucks. Of that 1.13 million, a $180,000
20:53
are contributions. That's your 500 bucks times 12
20:58
months in the year times 30 years.
21:00
That's that adds up to $180,000 that isn't taxed, that's already
21:05
been taxed as income. That's you paid income tax and
21:09
you earned that 500 bucks. You can take that 180,000, give
21:13
it right to your kids, no tax. But that represents growth too.
21:17
There's growth in that which is $950,000.
21:20
So most that 1.13 million is the growth $950,000.
21:23
And on that like let's say the day they turn 30, you sell it
21:29
all, you click sell on fidelity.com and you realize,
21:32
you know, you realize the gain of all $950,000.
21:35
You would pay capital gains tax on that somewhere somewhere
21:38
between zero, 1015 or 20% federally and maybe you know for
21:45
your state too depending. And it's like let's say you pay
21:47
20% tax on that. There's $190,000 owed in tax.
21:51
That means it's $1.13 million that's grown is actually going
21:56
to shrink to $940,000 after you pay the tax.
21:59
You know, it's, it hurts a little bit because we, you know,
22:02
we went over the gap of the, the seven to six figures, but you
22:06
know, 1.1 million and .94 million are both about 1,000,000
22:10
bucks. And so it's not crippling.
22:12
Your kids are still going to get a lot of money.
22:14
And so if you're asking how do I avoid that, there's only one
22:18
really good way. And unfortunately for you, the
22:21
the good way to avoid that is to die if you, if you have, you
22:25
know, spooky Halloween. Very Halloweeny.
22:28
If you die, your kids enjoy a step up basis, which means
22:33
instead of their basis being that 180,000 that you
22:35
contributed, their basis becomes the 1.13.
22:39
That means the day you die and you know the state transfers.
22:41
They can click solid fidelity and get 1.13 million and owe
22:45
$0.00 in tax. The problem is if you want to do
22:48
what you're saying and give it to them while they're alive,
22:51
you're going to pay that capital gains or they are, you can gift
22:54
them, you can transfer the stock or the index fund directly to
22:57
them, But then when they sell, they're going to pay the capital
23:00
gains. And so my general answer, and a
23:03
lot of times people ask these questions, they're saying, hey,
23:06
I'm a new Doctor. I make half $1,000,000 a year.
23:09
What do I do to pay no income tax?
23:11
And the answer is you're going to pay income tax like that's,
23:14
you know, the government's going to make their money.
23:17
Yeah, there's things you can use little things that you can
23:19
contribute to four O 1K delimitate.
23:20
But that's that's a different question.
23:22
But in in this case, the answer is you're probably going to pay
23:25
capital gains tax because you can't just magically get all
23:28
this money. You know, there are a few things
23:30
you can do. You could put money into a 529
23:31
pay for a college and that that's essentially works like a
23:34
Roth where it's tax free. You could potentially experiment
23:37
with an UGMA or an UGMA, which is a custodial brokerage account
23:42
where you're basically putting all the money into your kids
23:45
name now and then here's the custodian of it, which basically
23:49
can take advantage of a slightly lower tax bracket because their
23:51
kids don't have any income. But there's there's some nuances
23:56
there too where they would get the money not at 30, but they
23:58
get the money at 18 or 21 depending on the state you're
24:01
in. And they would still own the
24:02
cap. They would still owe the capital
24:04
gains tax on that as well too. So basically my answer to you is
24:07
good news. Don't worry about the gift tax.
24:09
It probably won't impact you. If it does, please send
24:11
donations this way. And.
24:13
And two, you're probably going to be on the hook for some
24:16
capital gains if you have a ton of growth over these years.
24:19
Yeah, if your kids turn 30 and 33, if that one year old and a
24:23
three-year old, so the one year old's a doctor, 3 old's a
24:25
lawyer. You can be like, maybe I'll wait
24:26
a little bit longer. They they're fine for now.
24:28
They don't need this money at 30 you know what I mean?
24:31
Depending on your kids situation.
24:33
And you know, in that moment, you know, you said, I want to
24:35
give them a big lump sum at 30. You can maybe decide you're
24:37
like, oh, I can maybe stretch this out and wait till a little
24:39
tax year, yada, yada, yada. So there's some games you can
24:41
play in that moment. But you know, the question to
24:44
the way you formed is if you're going to sell everything and
24:46
give them, write them a big check on that day, you're going
24:49
to pay some capital gains tax. OK.
24:52
Thank you, Ben, for your question.
24:53
Hope that answered it and we'll move on to our next segment,
25:00
Scroll Patrol. Scroll Patrol.
25:03
All right, Jeremy, go ahead and click on that link and let's get
25:08
your reaction to this video. We're actually starting to get
25:11
videos in from people on Instagram.
25:14
So if you have a scroll patrol video or financial advice video
25:17
that you want us to review, good, bad, in between, send it
25:20
to my dms.jeremysdmspodcast@personalfinanceclub.com
25:24
and we'll review it. And as always, I have not seen
25:28
this at all. This is my true, authentic,
25:30
honest reaction. Jen chooses the ahead of time
25:32
and I'm clicking on it right now.
25:34
I believe investing in an index fund is like buying that fruit
25:38
bundle at the grocery store that might appear cheaper, but in the
25:42
middle of it you might have a bunch of mouldy old and spoiled
25:46
fruit. Investing in individual assets
25:48
will give you your control back. You can pick the fruit that
25:51
appears the most delicious to you, and besides that, most
25:55
index funds growth driven by a handful of companies in them.
25:59
So my question is, why not just invest directly into those
26:03
companies instead of blindly following an index that tracks
26:08
the value of all of these companies that you may or may
26:11
not even be aware of? By investing in an individual
26:15
asset, you actually become a shareholder of that company.
26:18
You can allocate how much you individually want to invest in
26:22
that company and you get other benefits like dividend payments.
26:26
That way you can can support the companies that you actually
26:29
truly love, and you won't accidentally invest in a company
26:34
that completely goes against your moral values that may be
26:38
hidden somewhere inside that index.
26:43
I hate this. Are you crying, Jeremy?
26:46
I think it's from allergies and I'm partially from this video,
26:50
so you know I hate. The music, first of all, I want
26:55
to start there. I hate the music.
26:56
I don't know what's going on with that.
26:59
And what is she? Is she like, dancing around?
27:01
A Hopefully we don't get booted off from YouTube for this
27:04
elevator music, but awful hopefully.
27:07
It's royalty free. We'll see.
27:09
But yeah, so my, my least favorite type of videos are
27:12
these ones that are have like are based in truth, which this
27:16
one is, and then come to this completely wrong conclusion
27:19
because it's it's likely to trick people, right?
27:22
And So what she's saying is like, she's kind of understands
27:25
index funds mostly correctly, which is, yeah, it's like a it's
27:27
a basket of stocks and you buy them in proportion of their
27:29
size. And and they're the growth has
27:32
been driven by the biggest companies.
27:33
And I also give her credit for saying, yeah, there might be
27:36
companies that don't allow with with your moral value, which I
27:38
think is maybe like the one point that I actually agree with
27:40
of of hers. But one thing that's like very
27:45
factually wrong is she said if you invest individually, you get
27:48
dividends. If you buy an index fund, you
27:50
get all the dividends from all those companies.
27:52
You absolutely get dividends with an index fund.
27:54
And so for example, if you buy an S&P 500 index fund, you could
27:58
buy like 7 of the stocks you like and get dividends from
28:03
those stocks. Or you could buy all 500 in an
28:05
S&P 500 index fund and you get the add up dividends from all
28:10
those different stocks. But her main point here is
28:13
really that you're buying bad companies and you should just
28:16
buy the good ones. And the problem with that is
28:18
it's just not true. You know, for example, if I went
28:21
back to the year 2000 and bond index fund, the biggest
28:25
companies that were like the best companies in the fund would
28:29
be companies like AT&T, IBM, Exxon Mobil, you know, General
28:35
Electric. These are the companies that
28:37
like drove the amazing growth of the 90s, right?
28:40
Are those the companies you should have been buying back
28:42
then? You know, if she made this video
28:43
in 1999, she would basically say, why would you buy the bad
28:47
companies you when you could buy General Electric when you could
28:50
buy IBM? And you know, those stocks are
28:52
still in the index. There's still companies doing
28:54
fine. But it means you wouldn't be
28:55
buying NVIDIA, you wouldn't be buying Tesla, You wouldn't be
28:58
buying Netflix. You'd be buying Blockbuster, not
29:00
Netflix, right? And so it's totally true, right?
29:04
Because Blockbuster was crushing in 99.
29:07
But that's the beauty of the index fund is, as Jack Bogle
29:10
says, don't look for the needle in the haystack.
29:13
Buy the haystack. If we could just buy the biggest
29:16
companies like you could if you wanted, but then you're missing
29:20
the growth of the future, right? And the, and the index fund
29:22
guarantees that. And so it's just, you know, and
29:25
study after study after study have looked at that and
29:28
individual investors, experts, mutual fund managers, hedge fund
29:31
managers can't individually pick stock and predictably beat the
29:36
market over time. A few occasionally do, in my
29:39
opinion, and based on those studies, it's just luck, not
29:42
skill as anyone's likely to get lucky.
29:45
Or if, if someone's guaranteed to get lucky, if everyone's just
29:48
doing it randomly. But it's like skillful trader
29:51
versus skillful trader. They're all battling it out,
29:53
charging fees and they all are going to underperform the index.
29:56
So yeah, I I I rate these on an A to an F Yeah, I give this one
30:03
like AD plus it's not AI know it's not a failing, but just
30:07
it's my least favorite type of video because it sounds like
30:11
this really clever conclusion, but it's just the absolute wrong
30:14
conclusion. And it's it's like based in a
30:18
generally correct understanding of index funds, which I think is
30:20
going to potentially push people the wrong direction.
30:25
Do you think she's trying to sell us something?
30:26
Like maybe she has a course on how to pick the best stocks or
30:28
something like that? I didn't do a deep dive on her
30:30
Instagram or. Anything.
30:31
I don't know who this is, but yeah, yeah, a lot of times if
30:35
you're Hank Green, who I love, who is not a finance guy, he
30:41
just made a video about investing and he, he says in it,
30:45
which I say too, which is if you talk to someone who knows what
30:47
they're talking about and isn't trying to sell you something,
30:50
they're going to tell you to buy an index fund because they only
30:53
have truth and your interest at heart.
30:56
If someone is saying your 4O1K is a scam or index funds are
30:59
dumb, there's probably something they're trying to sell you.
31:01
And so I don't know this person, but I would virtually guarantee
31:05
she has some agenda for trashing index funds.
31:08
Or she could just be, you know, just mistaken and making a video
31:11
about it, which is possible too. Wow is that that Hank Green
31:15
video? Long form?
31:16
If it's a short I might watch it.
31:18
It is long. It's about 20 minutes. 20
31:20
minutes in 2025. I know who's got time, right?
31:23
Give me the three second version, he says.
31:24
Buy next funds. That's it.
31:27
OK, awesome. OK, let's get into our last
31:29
segment of the episode. Jeremy had time today.
31:35
OK, so I dug back into the archives for this one, into our
31:38
Instagram, and you made a post about the cost of owning, which
31:42
is a hot topic on the Pfc page. Do you want to describe the post
31:46
that you made for the people listening?
31:48
Yes, it says cost of owning and then it's a little conversation.
31:51
The the first guy says owning a home is great because your
31:55
mortgage never goes up. And then the girl says true but
31:59
maintenance can be expensive. And he says Nah, I had $0.00
32:03
maintenance costs 11 out of 12 months last year.
32:06
And then below that the girl is kind of showing him a bar chart
32:10
that so it shows 11 out of 12 months, zero mortgage costs.
32:14
And then on August it says new roof $29,000.
32:18
And I do think this is well how a lot of people view home
32:21
ownership, which is like, oh, maintenance isn't bad.
32:24
I didn't do anything this month. But then you do a bathroom
32:26
remodel, it costs 20 grand and you amortize that over the time
32:29
you live there and you're like, oh, your bathroom remodel was
32:31
actually costing you $600 a month or whatever it is.
32:34
And you add that to the roof and you add that to the driveway and
32:36
the, the mold. You know, I just got Adm
32:38
yesterday. Someone says, how do I pay for
32:40
$100,000 of mold remediation in my house?
32:42
I was like, oh man, that's brutal.
32:44
I was like, I got to get another quote to start, but but you're
32:46
probably just going to have to pay it so.
32:48
So what was the comment? OK, we'll circle back to a roof
32:52
costing 29,000 because if so, I'm going to keep renting, the
32:55
comment says. Do you think landlords pay for
32:58
maintenance out of their own wallet?
32:59
No mortgage, tax, insurance, maintenance, etcetera gets
33:03
bundled into a neat little package called rent.
33:08
Yeah, that's true. I mean, I feel like all these
33:10
things are always like, yeah, that's kind of true.
33:13
But a few things. One, you know, rent isn't all
33:18
those things added up plus profit.
33:21
Rent is whatever the market will bear.
33:24
And if you can't rent out your place for more than all of your
33:27
expenses, then you're going to take out a loss, right?
33:29
Obviously many, I'd say most landlords do turn a profit,
33:33
which is why they're landlords. But just because all your
33:37
expenses add up to something, it doesn't mean rent is guaranteed
33:40
to be more. In fact, a lot of times renting
33:42
can be a lot cheaper if there's these large expenses that you
33:44
don't have to bear. So that's the 1-2 is that I
33:48
think a lot of people think about this in a vacuum.
33:50
They say, OK, I'm buying this house in the middle of this plot
33:54
of land and it's this exact house, It's this exact square
33:57
footage, it's this exact everything.
34:00
And if I rent it, it'll be X dollars.
34:03
If I buy it, it'll be Y dollars. And because the business of
34:08
landlording as an aggregate has to be profitable for it to
34:11
exist, renting must be more expensive than buying.
34:15
The problem is these decisions aren't made in the vacuum.
34:18
Have you ever you haven't ever owned a home, have you, Jen?
34:20
I have not. Welcome to California in your in
34:24
your 30s one one of these days. But yeah, but what most when I
34:30
ask home owners this question, I say describe to me the last
34:34
place you rented. They'll say, oh, there's a 2
34:36
bedroom apartment in a 16 unit building and you know, it's kind
34:40
of like slightly dated yadda yadda, yadda.
34:43
And I was then I say, explain to me the home he bought.
34:45
They're like, oh, it's a four bed, 3 bath, a single family
34:48
home on a nicer area, yadda yadda, yadda.
34:51
And so that's not the same, right.
34:54
And what happens is people who go from renting to buying go
34:58
from this inexpensive experience that has economies of scale,
35:03
things like shared walls, shared land, land, lower utilities,
35:07
that even though there's a profit built into the landlord,
35:10
your cost is much lower than the cost of living in a home where
35:15
you have all four walls and more land and all the utilities and
35:18
all the maintenance and the yadda, yadda, yadda.
35:19
And so it's not an apples to apples comparison, right?
35:22
People often will rent very frugally and buy very loudly,
35:26
thus ratcheting up these maintenance costs, insurance
35:31
costs, property tax costs, realtor costs, all these things
35:35
that are would be much more. And so where people often go
35:38
wrong is they'll say, OK, my rent is $2000 a month.
35:41
When I go do a Mortgage calculator online, I can see at
35:45
a $2000 mortgage, I can buy this much home, I'm going to go buy
35:47
it. But then all those costs stack
35:50
up on top of it. And I actually like how this
35:52
commenter said all these costs are bundled into a neat little
35:56
package called rent. That's true.
35:58
And I actually think that's a benefit because maintenance,
36:01
taxes, insurance, realtor fees, opportunity cost of your down
36:07
payment going to home, all that stuff is packaged into one
36:10
payment called rent, and then you can take all of your other
36:13
money and do whatever you want with it.
36:14
What happens is people become house poor where they take their
36:17
$2000 rent payment, get into a $2000 mortgage, and then they
36:21
pay for the roof and then they pay for the remodel and then
36:24
they pay property tax and then they pay property insurance and
36:27
then they pay realtor fees. And then they're like, oh man.
36:29
Like my total cost of ownership, you know, including the down
36:33
payment on top of that is maybe more like $4000 a month.
36:37
If you could rent a place for $4000 a month, you could have
36:39
rented a mansion for that or whatever, right?
36:41
So, you know, don't hate this commentary.
36:45
You know, if you really want to find some Jeremy had time today
36:49
material and go look at my rent versus by post because people
36:51
get very upset about this. But my my general advice is I'm
36:56
not a ownership hater. I think people whenever I even
36:59
mention that there's an option, they think I hate home
37:01
ownership. I don't.
37:02
I say, you know, maybe rent, maybe buy, go into with your
37:06
eyes wide open. Look at the total cost of
37:08
ownership, not just the mortgage payment.
37:10
And what's most important is living below your means.
37:13
Owning frugally is a much better option than renting lavishly.
37:17
And I'd say renting frugally is a much better option than owning
37:20
lavishly. And so, you know, do what's
37:23
right for your life. But the below means don't be.
37:26
Hustled either way, let's be frugal.
37:28
Yeah? Man, I just want AI.
37:30
Just want a mansion. Yeah, OK.
37:34
I was just in rural Texas. You can rent.
37:37
You can rent literal mansions by California standards.
37:40
They're 1499 a month for rent. Like everything included?
37:44
Like your 4 bedrooms? Yeah, yeah.
37:47
If I want to own a home, I'm going to go back to North
37:49
Carolina. Yeah.
37:49
Run that through. Run that through your LA Price
37:53
meter. Please, Peanuts.
37:55
OK, all right. Should we read a little quick
37:58
review? Let's do it.
38:00
OK, this is from Sam who commented on our Spotify.
38:03
He says it's a great course. Got me started with investing 1
38:06
before I was always too overwhelmed to take the first
38:08
step. So thanks Sam for commenting and
38:10
listening to episode 3. Hopefully you enjoy this
38:13
Halloween episode. That's all the time we have
38:16
today for you on the Personal Finance Club show.
38:19
We hope to see you next week. And don't forget to follow the 2
38:22
rules of Personal Finance Club. Rule #1 live below your means
38:26
and rule #2 invest early and often.
38:28
The personal finance club show is produced by Jeremy Schneider
38:31
and Jed Mundia, music by Essa Balu and Homie.
38:34
Send your questions to podcast@personalfinanceclub.com.
38:38
The Personal Finance Club show is Co hosted by Jeremy Schneider
38:41
who is a co-owner of Nectarine and SEC Registered Investment
38:45
Advisor. The views expressed on this show
38:47
are those of the hosts and guests and do not necessarily
38:49
reflect the views of Nectarine. Please refer to
38:52
hellonectarine.com for all relevant disclosures.
38:56
This podcast is for informational and educational
38:58
purposes only and should not be construed as personalized
39:01
investment advice or a solicitation to buy or sell any
39:04
security. Listeners should consult their
39:06
own financial, legal or tax professionals for advice