Latest / Money In Motion with Klaas Financial / Reality Check on Household Debt: Paying Yourself First

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Reality Check on Household Debt: Paying Yourself First · Money In Motion with Klaas Financial

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Speaker 1: The phone line's been hot the past few weeks. I
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Speaker 1: love to keep that straight going. If you've got a question,
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Speaker 1: love to hear from you. This morning, we've got a
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Speaker 1: retirement planning professionals from Class Financial CJ Closs and Eric Schwartz.
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Speaker 1: Telephone number to get on the air six soh eight
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Speaker 1: three two one thirteen ten. That's six oh eight three
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Speaker 1: two one thirteen ten. Loved you, have you join us?
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Speaker 2: Don't forget.
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Speaker 1: You can learn more about Class Financial on their website.
0:20
Speaker 1: It's great website. It's called Cossfinancial dot com. That's Coss
0:23
Speaker 1: klaas Financial dot com. They're telephone number six so oh
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Speaker 1: eight four four two five six three seven. No charge
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Speaker 1: for that initial get to know you appointment tech Coss Financial.
0:33
Speaker 1: It will be complementary to you again. Their number six
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Speaker 1: oh eight four four two five six three seven and
0:38
Speaker 1: the telephon number to get on the air six so
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Speaker 1: eight three two one thirteen ten. That's six so eight
0:42
Speaker 1: three two one thirteen ten. Now, last week I said
0:45
Speaker 1: we'd be introducing Eric first this week, CJ.
0:48
Speaker 2: Is that okay? If we introduce Eric first this week? Sure?
0:51
Speaker 3: Right ahead?
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Speaker 1: Joining us this morning our CERTI find final a little
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Speaker 1: bit of everything.
0:57
Speaker 2: So one of those days.
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Speaker 1: Eric, how you doing, man, I'm getting great, Sean start,
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Speaker 1: I'm doing great.
1:03
Speaker 2: I want to start giving you guys his titles and everything. CJ,
1:06
Speaker 2: how have you been.
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Speaker 3: Man, I've been doing good.
1:09
Speaker 2: Thanks Chan, It's good to talk with both of you.
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Speaker 2: In goodness. We've got an important show, a big show
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Speaker 2: I had.
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Speaker 1: We're going to talk about something that that is for
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Speaker 1: a lot of folks becomes the facts of fact of life,
1:21
Speaker 1: which is debt. And it's something that's important to be uh,
1:24
Speaker 1: to be always aware of and certainly something as.
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Speaker 2: You near retirement.
1:27
Speaker 1: To get into retirement you definitely want to have squared
1:30
Speaker 1: away and have a plan for it. So we're gonna
1:32
Speaker 1: be talking about that with CJ and Eric this morning.
1:35
Speaker 1: Don't forget it. Phone lines are open whether you want
1:37
Speaker 1: to talk about debt or any type of retirement related question.
1:39
Speaker 1: Our retirement planning professionals are here for you. Tell forh
1:42
Speaker 1: number six O eight three two one thirteen ten. That's
1:44
Speaker 1: six oh eight three two one thirteen ten. A lot
1:46
Speaker 1: of great stuff on the program. Also, we'll be getting
1:49
Speaker 1: to the money and motion listener question corner. Also another
1:52
Speaker 1: cool thing is the class Quiz Question the Week your
1:55
Speaker 1: chance to win a fantastic prize. This week our friends
1:57
Speaker 1: from Class Financial I provided a twenty five dog gift
2:00
Speaker 1: card to best by. Tell you a little bit later
2:02
Speaker 1: on in the program how you can win the Class
2:04
Speaker 1: Quiz Question the week. Just a little tip listen closer
2:06
Speaker 1: to the program. Not only rely get some great information,
2:09
Speaker 1: you will also have a leg up on everybody else
2:11
Speaker 1: because oftentimes about every show the question and answer come
2:14
Speaker 1: up during the program. And speaking of the Class Quiz
2:17
Speaker 1: Question the League, let's actually take a look back at
2:19
Speaker 1: last week's program get the question and answer there as well.
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Speaker 4: Sure, so, thank you everybody for listening last week, and
2:28
Speaker 4: especially to our winner Scott from Belleville. The question was
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Speaker 4: true or false? As you plan for retirement, should you
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Speaker 4: regularly review your needs for health insurance, life insurance, long
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Speaker 4: term care insurance, and property and casualty insurance? And Scott
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Speaker 4: knew that the correct answer was, of course true.
2:45
Speaker 1: Fantastic stuff. As of course, we did a great show
2:49
Speaker 1: last week on that imant important topic of course, insurance
2:54
Speaker 1: and forms of insurance and all the different things. You
2:56
Speaker 1: can always listen back at classfinancial dot com. That's Coloss
2:59
Speaker 1: k aasfinancial dot com this week thought be talking about
3:04
Speaker 1: a debt, and of course folks are preparing for retirement debt,
3:08
Speaker 1: of course it becomes a major topic. How common is
3:11
Speaker 1: it for folks to carry debt CJ.
3:14
Speaker 3: Yeah, it's probably more common than people realize, and it
3:17
Speaker 3: can create some real challenges. So retirees are living on
3:22
Speaker 3: obviously more fixed incomes when they get to get into retirement,
3:26
Speaker 3: and obviously debt payments then can quickly eat into their savings.
3:31
Speaker 3: According to the Federal Reserve Bank of New York, total
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Speaker 3: US household debt hit a record eighteen trillion dollars in
3:39
Speaker 3: the fourth quarter of last year, so fourth quarter of
3:41
Speaker 3: twenty twenty four. Now that includes mortgages, credit cards, car loans,
3:45
Speaker 3: and student loans. But here's the key, everybody, I mean debt.
3:50
Speaker 3: While while not all forms of debt are necessarily evil,
3:55
Speaker 3: debt equals risk. It leverages you and requires you to
3:59
Speaker 3: bring us certain amount to the table and pay the
4:02
Speaker 3: bank first or the lender first, before you can pay yourself.
4:07
Speaker 3: And so therefore, when you think about debt, this is
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Speaker 3: kind of a modern marvel. Most of us who are
4:12
Speaker 3: listening to this show, this is a modern marvel we
4:15
Speaker 3: have lived with our entire lives. But if you talk
4:17
Speaker 3: to great grandparents, you know, during the early nineteen twenties,
4:21
Speaker 3: nineteen thirties, maybe even before then, debt wasn't really much
4:25
Speaker 3: of a thing. It was almost like a thing for
4:27
Speaker 3: the wealthy people like that. You just if you made money,
4:29
Speaker 3: you bought stuff. If you didn't have money, you didn't
4:31
Speaker 3: buy anything. And so the reason I say this too
4:34
Speaker 3: is because you actually have to realize that debt is
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Speaker 3: a modern marvel that doesn't delay gratification. It actually gives
4:42
Speaker 3: you gratification now, right, So, because why am I using
4:46
Speaker 3: debt well to buy something I can't afford? That's why, right, Like,
4:50
Speaker 3: let that sink in. Why am I using debt to
4:52
Speaker 3: buy something I can't afford today but hope to be
4:56
Speaker 3: able to afford over a long period of time. Now,
4:59
Speaker 3: some of you are panic right now, going is he
5:01
Speaker 3: saying we shouldn't buy homes with mortgages? Now I'm not
5:04
Speaker 3: saying that, but let's be clear. You are buying a
5:07
Speaker 3: home with a mortgage because you can't afford it today,
5:11
Speaker 3: that's what you're doing. Now. Why am I emphasizing this
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Speaker 3: right now? Well, because if you don't eventually get that
5:18
Speaker 3: behavior under control or don't eventually understand what you're doing
5:23
Speaker 3: by saying I'm going to use a mortgage to buy
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Speaker 3: a home, and you don't ever kind of like corral
5:28
Speaker 3: that risk profiling. When you get into retirement, it becomes
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Speaker 3: really dangerous because you can't work your way out of
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Speaker 3: the problem. You can't just get raises and bonuses or
5:40
Speaker 3: move to new employers to suddenly take care of that problem.
5:43
Speaker 3: So my encouragement to you all is to recognize certain
5:46
Speaker 3: types of debts while you're young and working and more
5:48
Speaker 3: risk tolerant. Fine, but when you get older, you need
5:52
Speaker 3: to really, in our humble opinion, pivot that mindset to say,
5:56
Speaker 3: I need to do my best to eliminate that debt
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Speaker 3: so that when I am in retirement on a fixed income,
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Speaker 3: I won't feel the scarcity of the debt or of
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Speaker 3: the bank taking all of my cash flow. Now, specifically,
6:09
Speaker 3: studies have revealed that credit card debt is more common
6:13
Speaker 3: than mortgage debt, believe it or not, with almost forty
6:16
Speaker 3: one percent of US families having a mortgage or home
6:18
Speaker 3: equity loan, whereas forty five point two percent are carrying
6:22
Speaker 3: credit card balances. Twenty percent are carrying education loans, which
6:27
Speaker 3: is a little bit separate. So because as you approach
6:30
Speaker 3: retirement and are now creating income streams, the last place
6:34
Speaker 3: you want to be diverting your cash flow is towards debt.
6:37
Speaker 3: So listen, we don't live in utopia. We live on
6:40
Speaker 3: planet Earth here, so we recognize that sometimes even people
6:43
Speaker 3: who want to have their debt paid off are not
6:45
Speaker 3: able to or or you know, life throws them some curveballs.
6:49
Speaker 3: We get it, we get it, we get it. What
6:51
Speaker 3: we really don't like seeing, though, is an attitude that
6:54
Speaker 3: says debt doesn't matter, and debt doesn't equal risk, and
6:59
Speaker 3: so as I enter into retirement debt, you know, I'm
7:01
Speaker 3: just going to carry all the debt. We would say
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Speaker 3: good luck, good luck. We don't see that having high
7:08
Speaker 3: high probabilities of success.
7:09
Speaker 2: Talking this morning with CJ.
7:10
Speaker 1: Closs and of course Eric Schwartz, they are our retirement
7:13
Speaker 1: planning professionals, and they come to us from Class Financial,
7:16
Speaker 1: the website class financial dot com. That's coss k l
7:19
Speaker 1: aa ns financial dot com. They're tell for number six
7:21
Speaker 1: oh eight four four two five six three seven No
7:24
Speaker 1: charge for the initial get to know your appointment Tech
7:26
Speaker 1: Loss Financial, it will be complimentary to you again. Their
7:29
Speaker 1: numbers six oh eight four four two five six three seven.
7:32
Speaker 1: So Eric, obviously we talk about, you know, kind of
7:34
Speaker 1: those big implications and really why this is a big deal.
7:37
Speaker 1: What kinds of debt then should folks be most focused
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Speaker 1: on when it comes to ridding themselves of as they
7:43
Speaker 1: as they approach and get into retirement.
7:46
Speaker 4: That is a great question, Sean. And before I jump
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Speaker 4: into that, I just got to give some props to
7:50
Speaker 4: CJ for going through that whole first section, because nobody
7:54
Speaker 4: hates debt more than CJ, let me tell you. And
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Speaker 4: he just had to read all of those stats about
7:59
Speaker 4: carrying credit card and he did it wonderfully.
8:04
Speaker 1: Yeah, like you make Dave Ramsey seem like a softy sometimes.
8:09
Speaker 1: Oh wow, wow, oh my gosh.
8:15
Speaker 4: All right, well, let's let's talk about some of those
8:17
Speaker 4: common types of debt. CJ mentioned this earlier, the credit
8:20
Speaker 4: card debt, and that is an incredible stat being more
8:25
Speaker 4: common than mortgage debt. The average credit card interest rate
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Speaker 4: right now is hovering, you know, between twenty and twenty
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Speaker 4: four percent, some of them up to thirty percent and
8:35
Speaker 4: even higher. We've we've talked before on the show about
8:40
Speaker 4: the impact of the interest rate level on credit card
8:43
Speaker 4: interest rates, and they tend to be very impacted by
8:47
Speaker 4: by higher interest rates. And we are seeing that right
8:50
Speaker 4: now with mortgages. Even if you're locked in at a
8:54
Speaker 4: six to seven percent rate or even less, that's still
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Speaker 4: a monthly payment in retirement. That's still cash flow that
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Speaker 4: you have to put somewhere else other than towards expenses
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Speaker 4: of the things you want to do in retirement. So
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Speaker 4: even you know, we often say, well, mortgage is good debt,
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Speaker 4: and that's true if you're comparing it to the other
9:13
Speaker 4: types of debt you can have. But if we can
9:16
Speaker 4: prioritize paying that down before retirement, that is just all
9:19
Speaker 4: the better for retirees. Last one I want to talk
9:23
Speaker 4: about here is student loans, and surprisingly a lot of
9:26
Speaker 4: retirees are still carrying these. Sometimes they're actually their own loans,
9:32
Speaker 4: sometimes their loans of children. I would say probably more
9:35
Speaker 4: commonly now we're seeing parents with loans for their children's college.
9:42
Speaker 4: Federal undergrad loans are you know, around six and a
9:45
Speaker 4: half percent graduate loans or even higher between eight and nine,
9:49
Speaker 4: and then private loans they'll be there. This is a
9:52
Speaker 4: huge range. They're anywhere from three point four to seven
9:55
Speaker 4: up to seventeen point.
9:56
Speaker 5: Nine to nine.
9:57
Speaker 4: It really depends on the institution you're working with. But
10:01
Speaker 4: if you're considering refinancing those those public loans to private loans,
10:06
Speaker 4: just remember private loans don't offer the same protections like
10:09
Speaker 4: deferment or income based repayments, So just make sure you're
10:13
Speaker 4: you're well aware of what you're doing if you're thinking
10:16
Speaker 4: about consolidating and refinancing.
10:19
Speaker 1: Talking this morning with every tirement Flying professionals Eric Schwartz
10:22
Speaker 1: and CJ.
10:22
Speaker 2: Closs.
10:23
Speaker 1: Of course they come to us from Coss Financial their
10:25
Speaker 1: website coss financial dot com. It is a great website
10:28
Speaker 1: that's coss k l aa S Financial dot com. Great
10:31
Speaker 1: chance to get to know the team at Coss Financial
10:33
Speaker 1: also learn about their separate divisions.
10:35
Speaker 2: Another cool feature at.
10:36
Speaker 1: Cossfinancial dot com is the chance for you to sign
10:39
Speaker 1: up for the weekly Market Pulse newsletter, so once a
10:41
Speaker 1: week email gives you a snapshot of what's been going
10:44
Speaker 1: on in the markets. Also a link to the most
10:45
Speaker 1: recent podcast that available to you at Cossfinancial dot com.
10:49
Speaker 1: Speaking of things available to you, the telephone number at
10:51
Speaker 1: Coss Financial six oh eight four four two five six
10:54
Speaker 1: three seven not going to cost you a think for
10:56
Speaker 1: that initial get to know your appointment at Coss Financial.
10:58
Speaker 1: It will be complementary to you again their number six
11:00
Speaker 1: oh eight four four two five six three seven fold
11:03
Speaker 1: lines are open also here at station. If you've got
11:05
Speaker 1: a question for CJ and Eric, all you got to
11:06
Speaker 1: do is give us call six oh eight three two
11:08
Speaker 1: one thirteen ten. That's six eight three two one thirteen ten.
11:12
Speaker 1: So we've established that that debt is is not good. Well,
11:15
Speaker 1: we're going to talk with the guys about some strategies
11:17
Speaker 1: to reduce and eliminate debt before retirement. We'll do that
11:20
Speaker 1: next has Money in Motion with Coss Financial continues right
11:23
Speaker 1: here on thirteen ten WIBA talking with our retirement planning
11:27
Speaker 1: for professional CJ.
11:28
Speaker 2: Closs and Eric Schwartz.
11:29
Speaker 1: Of course they come to us from Class Financial to
11:31
Speaker 1: website Coss financial dot com. That's Class klaasfinancial dot com.
11:36
Speaker 1: Talking debt this week and of course, uh, really important
11:40
Speaker 1: thing to get under control. And as we as we
11:43
Speaker 1: think about that, I know a lot of folks start
11:44
Speaker 1: to focus in and say, well, are there strategies?
11:47
Speaker 2: Are there techniques?
11:48
Speaker 1: What can folks be doing when it comes to working
11:50
Speaker 1: towards reducing or eliminating their debt before retirement.
11:54
Speaker 3: Yeah, good question, Sean. It it does start with a plan.
11:57
Speaker 3: You don't have to reinvent the wheel here. There are
11:59
Speaker 3: a lot of tried and true strategies. But I would
12:01
Speaker 3: say to you, you know, pay attention to like what
12:05
Speaker 3: what banks and what the federal government does to make
12:08
Speaker 3: sure that they get paid. So what does a bank
12:11
Speaker 3: do well? They automatically draft out of your bank account
12:15
Speaker 3: your debt service payment and if you go like more
12:17
Speaker 3: than about thirty days, they're going to start foreclosing on you.
12:20
Speaker 3: I mean it's quick and it's decisive. So said another way,
12:23
Speaker 3: a bank is going to make sure that they get
12:25
Speaker 3: paid first. What does federal government do well? They institute
12:29
Speaker 3: is something called the payroll tax, So before you get paid,
12:31
Speaker 3: they get paid. Think about that. Let that's settle in.
12:35
Speaker 3: They actually say no, no, no, no, no, Actually we're going
12:37
Speaker 3: to work with companies and with you know, accounting firms
12:39
Speaker 3: and all that to make sure that we get paid
12:41
Speaker 3: before you get paid. So now that kind of freaks
12:45
Speaker 3: people out. The point here is like, oh, these are large,
12:48
Speaker 3: mega institutions that have figured out. If you want something
12:53
Speaker 3: to be done, do it immediately. Okay, So we can
12:57
Speaker 3: use that technique to our advantage. If I have a
13:00
Speaker 3: a strategy of wanting to pay down debt before I
13:02
Speaker 3: get to retirement, what should I do. I should make
13:06
Speaker 3: it as the make it the first thing that happens
13:08
Speaker 3: after I get paid. So pay down my debt first.
13:12
Speaker 3: So set a payoff strategy and then stick to it.
13:15
Speaker 3: Another thing that we've noticed that has high degrees of
13:19
Speaker 3: like I'll call it cognitive success, is something called the
13:23
Speaker 3: debt snowball. This is the debt snowball is listing your
13:27
Speaker 3: debts in order of smallest balance to largest balance, so
13:31
Speaker 3: it's basically ignoring interest rates. What you do then is
13:35
Speaker 3: you make a minimum payment on every single debt in
13:39
Speaker 3: that debt snowball. Besides the smallest balance, you put all
13:43
Speaker 3: of your excess cash flow that you can possibly you know,
13:47
Speaker 3: scrounge together towards the smallest balance, and then once that
13:50
Speaker 3: one is paid off, you do the same thing. You
13:53
Speaker 3: move down to the next smallest balance, minimum payments on
13:56
Speaker 3: everything but the smallest balance, and you then snowball your
13:59
Speaker 3: pay payments until they're all gone. Now, some people go,
14:03
Speaker 3: why would you do that? What if I had a
14:05
Speaker 3: credit card at fort you know, at twenty two percent,
14:07
Speaker 3: that was my second you know, second smallest balance. Shouldn't
14:10
Speaker 3: I attack that first because the interest rate is large
14:13
Speaker 3: enough or as you know, it's too high. Hypothetically, yes,
14:17
Speaker 3: but what you're missing is that actually what got you
14:19
Speaker 3: into the problem was behavior problems, not math, right, and
14:24
Speaker 3: so we're going to use behaviors as a way to
14:26
Speaker 3: get us out of debt as well. So said another way,
14:29
Speaker 3: we have found that there's a lot of cognitive triggering
14:31
Speaker 3: that occurs when you get a debt paid off, and
14:34
Speaker 3: it can almost make a game out of it. It's
14:36
Speaker 3: like gamifying your debt, your debt reduction. Okay, more on
14:40
Speaker 3: that in the future. You can call us if you
14:41
Speaker 3: have any questions. Also, set up automatic payments, so back
14:45
Speaker 3: to my comment about the federal governments, make sure that
14:48
Speaker 3: they get paid before you get paid. Well, similarly, you
14:51
Speaker 3: should consider setting up those auto payments and having them
14:54
Speaker 3: be first right after you get paid, and making them large.
14:57
Speaker 3: So then what ends up happening is you live on
15:00
Speaker 3: off of what is left over. Often we'll find Eric
15:04
Speaker 3: and I will hear people say you know, I want
15:06
Speaker 3: to save for retirement, but there's just nothing left at
15:08
Speaker 3: the end of the month, and we go, well, that's
15:10
Speaker 3: the first problem, because what I hear you saying is
15:13
Speaker 3: that saving for retirement is the last thing that you
15:16
Speaker 3: do right, So basically you should be paying the things
15:22
Speaker 3: that are most important to you first and then living
15:25
Speaker 3: off of the residual and then obviously, you know, do
15:31
Speaker 3: try to find some a balance between debt repayment and
15:34
Speaker 3: saving for the future. I know this is something that
15:36
Speaker 3: a lot of people get head trash around. As it
15:38
Speaker 3: relates to Dave Ramsey is like, do I not save
15:40
Speaker 3: into my four one K plan when I'm paying off debt?
15:43
Speaker 3: And our answer would be talk to a good financial advisor.
15:46
Speaker 3: It depends upon a number of factors. But we don't
15:49
Speaker 3: really disagree with Dave on this as much as just
15:52
Speaker 3: there's a lot of subtlety involved in that. So you
15:54
Speaker 3: do want to make sure that you talk to a
15:56
Speaker 3: good advisor, talk to a good accountant, and make sure
15:58
Speaker 3: that you are both trying to say for the future,
16:01
Speaker 3: save for a rainy day and paying down your debt.
16:03
Speaker 1: Really good guidance and advice as always from retirement planning
16:06
Speaker 1: professionals from Class Financial the website Class financial dot com.
16:09
Speaker 1: That's class k l as financial dot com. Also on
16:13
Speaker 1: the website you can listen back to this in previous
16:15
Speaker 1: shows podcast. As matter of fact, you can subscribe right
16:19
Speaker 1: on the website Class financial dot Com. There're TELF number
16:22
Speaker 1: six O eight four four two five six three seven
16:24
Speaker 1: No charge for that initial gets no appointment Tech and
16:26
Speaker 1: Loss Financial. It will be complementary to you. Now shifting gears,
16:30
Speaker 1: let's talk about kind of the other side of it,
16:31
Speaker 1: which is how can you avoid adding to your debt
16:34
Speaker 1: then as you as you get closer to retirement.
16:39
Speaker 4: Yeah, Sean, this is this is really all about habits
16:41
Speaker 4: and mindset and really what CJ was referencing there too,
16:45
Speaker 4: which is just this kind of behavioral finance component that
16:49
Speaker 4: we would call it just understanding that there's a human
16:52
Speaker 4: there's a human element to this. We can all sit
16:55
Speaker 4: down and say I'm making a plan, I'm going to
16:57
Speaker 4: pay off my debt, but our behaviors are going to
17:00
Speaker 4: creep in if we're not thinking about it, if we're
17:03
Speaker 4: not thinking about it, you know, on an ongoing basis.
17:06
Speaker 4: So the first part of this is is simply from
17:09
Speaker 4: a spending standpoint, if you have a if you have
17:13
Speaker 4: an issue with with spending way too much on your
17:15
Speaker 4: credit cards, and it's it's something that you're trying to address.
17:20
Speaker 4: Get rid of. Get rid of those credit cards, get
17:22
Speaker 4: them out of your wallet, go cash only, and eliminate
17:26
Speaker 4: the temptation to spend. This is there. There's nothing more disheartening,
17:33
Speaker 4: I guess, and working with clients for them then then
17:36
Speaker 4: you know, I see them in a meeting and then
17:37
Speaker 4: I see them I don't know, maybe six months later,
17:39
Speaker 4: and we check in on things and they say, yeah,
17:42
Speaker 4: we've been making that new payment on the on the debt,
17:44
Speaker 4: but you know it balance really hasn't gone down that much.
17:47
Speaker 4: I'm like, well, that's because you're still using it.
17:49
Speaker 3: You know.
17:49
Speaker 4: It's just this idea of you need to take away
17:52
Speaker 4: the temptation. Be aware of your interest rates. So make
17:56
Speaker 4: a list of your debts. I know it sounds really overwhelming,
17:59
Speaker 4: and you think, gosh, I don't need to see all
18:01
Speaker 4: that in one spot. But making a list and understanding
18:05
Speaker 4: how much each of the debts is costing you an interest,
18:08
Speaker 4: You'll be really surprised how motivating it is when you
18:11
Speaker 4: when you see how much, how much extra you're paying
18:14
Speaker 4: on certain certain debts and interest, and it really encourage
18:18
Speaker 4: you to tackle those head on. Don't be afraid to
18:22
Speaker 4: use debt repayment tools and calculators. Websites like credit Karma
18:27
Speaker 4: or calculator dot net. They offer free tools that kind
18:31
Speaker 4: of help you plan out how your your debt payoff
18:33
Speaker 4: journey is going to go. And finally, this is going
18:36
Speaker 4: to sound obvious, but pay bills on time, late pees,
18:39
Speaker 4: and misspayments. They hurt your credit and they're going to
18:41
Speaker 4: cost you extra in terms of late payment fees and
18:44
Speaker 4: higher interest. So set reminders or auto pay wherever possible.
18:50
Speaker 4: And just as I said, be very cognizant of this,
18:54
Speaker 4: because all the best intentions kind of go by the
18:57
Speaker 4: wayside if we're not if we're not thinking about it
18:59
Speaker 4: on an ongoing basis.
19:01
Speaker 1: Talking this morning with our retirement planning professionals from Class Financial,
19:04
Speaker 1: Eric Schwartz and CJ. Closs, of course you can learn
19:06
Speaker 1: more about Class Financial. They've got a great website. It's
19:08
Speaker 1: Cossfinancial dot com. That's Class k l aa S Financial
19:12
Speaker 1: dot com and their telephone number four four to two,
19:14
Speaker 1: five six, three seven no charge for that initial gets
19:17
Speaker 1: no you appointment tech Class Financial. It will be complementary
19:20
Speaker 1: to you after your house. It's probably one of the
19:22
Speaker 1: biggest loans you've ever taken, which is of course your car,
19:25
Speaker 1: your automobile. Will talk about auto loans, we'll talk about
19:29
Speaker 1: those next, and we'll also do the listener question corner.
19:32
Speaker 1: We'll do all of that as Money in Motion with
19:34
Speaker 1: COSS Financial continues right here on thirteen ten WYBI talking
19:38
Speaker 1: with CJ. Closs and Eric Schwartz, our retirement planning professionals
19:41
Speaker 1: from Class Financial the website coss financial dot com. That's
19:44
Speaker 1: coss k l aa S financial dot com talking debt
19:48
Speaker 1: and goodness. This is one of those that I think
19:50
Speaker 1: sometimes slips our mind that it is a debt, which
19:52
Speaker 1: is our cars and our auto loans. I know there's
19:56
Speaker 1: this is kind of one of those areas that can
19:57
Speaker 1: sneak up on folks a bit Canada.
19:59
Speaker 4: Eric, it sure can, and it's I think CJ would agree,
20:04
Speaker 4: a bigger issue today than it's ever been. Car loans
20:08
Speaker 4: are lasting longer than ever before. It seems like gone
20:11
Speaker 4: are the days of the thirty six or forty eight
20:13
Speaker 4: month repayment schedule. Now we're seventy two, eighty four ninety six.
20:18
Speaker 4: You know, we're getting close to a decade to pay
20:21
Speaker 4: off a car, which, as we know, is a depreciating asset.
20:26
Speaker 4: So when you're taking that long to pay off to
20:29
Speaker 4: pay off the balance, depending how much you borrow, you're
20:32
Speaker 4: very quickly getting to a place where where maybe you
20:35
Speaker 4: owe more on the vehicle than it's worth. But as
20:38
Speaker 4: we sit here today, in recent loans for a new
20:42
Speaker 4: car averaging about seven point three percent, use cars are
20:46
Speaker 4: somewhere around eleven. Now these are averages, right, They're not
20:51
Speaker 4: just the promotional rates that are being run at dealerships
20:55
Speaker 4: or whatever it might be. But car loans are becoming
20:59
Speaker 4: a bigger piece of the debt picture as we look
21:03
Speaker 4: at as we look at an eight year loan and
21:07
Speaker 4: we say, wow, that seems like a long time. Well,
21:09
Speaker 4: the average loan right now is seventy months, and that's
21:12
Speaker 4: for a new vehicle. And while longer term lowers your
21:16
Speaker 4: monthly payment and increases the total interest that you pay
21:20
Speaker 4: on the debt, and as I mentioned earlier, it gets
21:23
Speaker 4: you to a point where you are upside down on
21:25
Speaker 4: the loan where you owe more than the.
21:27
Speaker 3: Car is worth.
21:28
Speaker 4: So if you can stick with a five year loan
21:30
Speaker 4: or even shorter. That's great. Better Yet, you can build
21:34
Speaker 4: a sinking fund, which is this idea of setting money
21:37
Speaker 4: aside each month, basically like a phantom car payment, into
21:41
Speaker 4: a savings account, so that when it comes time to
21:43
Speaker 4: buy a new vehicle, you actually have a chunk of
21:45
Speaker 4: cash there to use. But just be smart about these,
21:49
Speaker 4: Be smart about auto loans, because they become an issue really,
21:52
Speaker 4: really quickly.
21:53
Speaker 1: It's funny, Eric, as you were talking there, I did
21:55
Speaker 1: not catch the sinking fund line. And I remember a
21:58
Speaker 1: couple of years ago CJU initially had brought up that term,
22:01
Speaker 1: and I remember googling it and I looked it back
22:03
Speaker 1: up again because I'm like, boy, I hope we mentioned
22:05
Speaker 1: sinking funds, and thank goodness it was.
22:07
Speaker 2: It was in because what a cool thing.
22:09
Speaker 1: Another thing too, I've noticed with if you actually save
22:12
Speaker 1: for a car rather than finance a car, you're a
22:14
Speaker 1: little more and I don't know what it is. There's
22:17
Speaker 1: probably psychology, and you guys understand this more than anyone,
22:20
Speaker 1: that when you've got the money on hand to buy
22:22
Speaker 1: a car, your decision making is a little bit different
22:25
Speaker 1: than I don't know, when you're going to finance it. It
22:27
Speaker 1: just seems like we'll go, yeah, we'll upgrade everything and
22:30
Speaker 1: maybe we'll go one one class up.
22:32
Speaker 3: And there's a lot of psychology behind it. There's two
22:36
Speaker 3: phrases we use, which is it's easier to spend somebody
22:39
Speaker 3: else's money than your own. Number one and number two,
22:42
Speaker 3: we would say the following. Poor people, more poor minded
22:47
Speaker 3: people ask how much does this cost me? Per month?
22:52
Speaker 3: Rich people or people with rich wealth creation mindsets ask
22:56
Speaker 3: how much does this cost period? Because the mindset of
23:02
Speaker 3: the poor is can I make the monthly payment? The
23:07
Speaker 3: mindset of the wealthy is can I afford this? So
23:10
Speaker 3: just remember that as you go throughout life, if you're
23:12
Speaker 3: ever asking well I can make that monthly go, that's
23:15
Speaker 3: the wrong question to be asking. The right question is
23:18
Speaker 3: how much will this cost?
23:19
Speaker 1: And as we talk too about some of these you know,
23:21
Speaker 1: these bits of wisdom and things that you guys get
23:23
Speaker 1: to experience at class financial and getting to know folks,
23:26
Speaker 1: what are there some other areas about you know, that
23:28
Speaker 1: kind of warning areas when it comes to carrying dead CJ.
23:33
Speaker 3: Yeah, So we would just say again some of the
23:36
Speaker 3: warning areas would be, you know, just like you can
23:39
Speaker 3: use compound interest to accumulate wealth through saving into a
23:44
Speaker 3: retirement account and seeing the compound growth of of a
23:48
Speaker 3: four to one K plan or IRA. Well, the same
23:50
Speaker 3: can be true against you, and so debt can compound
23:55
Speaker 3: against you, especially those really high interest debts. Now again,
23:58
Speaker 3: I want to be cautious here, as Eric was kind
24:01
Speaker 3: of poking at me and having fun, which I appreciated,
24:05
Speaker 3: and good faith. It is something that we realize there's
24:09
Speaker 3: not utopia here. We can't just have a million dollars
24:12
Speaker 3: to go buy our dream home when we're twenty five
24:14
Speaker 3: years old, right, So what are we going to do?
24:16
Speaker 3: And the answer is, well, your great grandparents actually just
24:19
Speaker 3: lived in small homes and eventually migrated up if they
24:22
Speaker 3: could afford it. So there is a world in which
24:24
Speaker 3: you have to understand this idea of mortgage debt and
24:27
Speaker 3: credit card debt and auto loans. These are modern marvels
24:30
Speaker 3: and you don't have to use them number one. But
24:33
Speaker 3: then number two, it would be if you're going to
24:35
Speaker 3: use them, use them cautiously. That's it. That's all we're saying,
24:39
Speaker 3: Just be cautious because it's kind of here would be
24:42
Speaker 3: the equivalent. Hey, is alcohol, by its definition a bad thing?
24:47
Speaker 4: No.
24:48
Speaker 3: Wife has a glass of wine maybe once a week,
24:49
Speaker 3: and she does great with it. But for this guy,
24:52
Speaker 3: for me, it was a big problem and so therefore
24:55
Speaker 3: I had to cut it out of my life. So
24:57
Speaker 3: it's knowing yourself and it's understanding that when you are
25:00
Speaker 3: going to touch something that has created a lot of damage,
25:05
Speaker 3: touch it carefully. So debt to us is one of
25:08
Speaker 3: those things. Hey, it's kind of like fire. The fire
25:11
Speaker 3: can make a nice fireplace and bring you warmth, or
25:14
Speaker 3: it can destroy everything. So be cautious of debt because
25:18
Speaker 3: it's destroyed a lot of American households. And we would
25:20
Speaker 3: say just use it kind of like fire. Just control it,
25:23
Speaker 3: contain it, and keep it small. But the big takeaway
25:27
Speaker 3: is this, make it your goal to retire debt free,
25:31
Speaker 3: including your mortgage if possible. The freedom it brings is
25:36
Speaker 3: well worth the effort.
25:38
Speaker 1: Talking great stuff this morning as we talk with our
25:41
Speaker 1: retirement planning professional CJ.
25:42
Speaker 2: Closs in Air.
25:43
Speaker 1: Schwortz, we're going to actually real quick go to the phones.
25:45
Speaker 1: Mike called in. Mike, I do want to get you
25:47
Speaker 1: on the air. Thank you so much for calling. We've
25:49
Speaker 1: only got a couple of minutes, but I see your question.
25:51
Speaker 1: I think it's a real important one. Welcome to Programming
25:53
Speaker 1: are on the air with CJ. Closs and Airic Schwartz
25:55
Speaker 1: of colass Financial.
25:57
Speaker 5: Thanks Sean, say, yeah, my question has to do with
26:01
Speaker 5: taking an RMD so and taking the rm D, paying
26:07
Speaker 5: the taxes, and then thinking about beneficiary ideas with getting
26:13
Speaker 5: that somehow into a ROTH. Okay, and let's leave out
26:17
Speaker 5: all the eligibility issues there, assuming that the money could
26:20
Speaker 5: go into a ROTH, because it's eligible if you're over
26:23
Speaker 5: fifty nine and a half you've taken the rm D.
26:27
Speaker 5: Does the five year rule apply to both the converted
26:30
Speaker 5: funds and that's the wrong word, the deposited funds and
26:34
Speaker 5: the income or does the five year rule only apply
26:38
Speaker 5: to one or the other of those two?
26:42
Speaker 3: Man, great question. There's a lot in that. And you
26:45
Speaker 3: told me to ignore the eligibility rules. That's tough. I'm
26:51
Speaker 3: going to abide by your outline here, but that's tough
26:55
Speaker 3: because there could be significant eligibility rules if you're using
26:58
Speaker 3: rm ds to make contribution, because you're right, we're not
27:00
Speaker 3: doing cun versions, we're doing contributions. But I'll ignore that
27:05
Speaker 3: and then you're right, Yeah, is there a five year
27:07
Speaker 3: rule as it relates to this new hypothetical wroth iray
27:12
Speaker 3: that you're going to establish and make contributions to. And
27:14
Speaker 3: the answer is no. So the five year rule applies
27:18
Speaker 3: to the growth you can't remove, and it applies to
27:22
Speaker 3: when the roth ira was established. So to be clear,
27:26
Speaker 3: if you establish a roth ira, I'll use your number
27:29
Speaker 3: fifty nine and a half or sixty, let's call it. Well, actually,
27:31
Speaker 3: and that doesn't work here because you're using rmds. I'm
27:34
Speaker 3: going to say you're seventy five years old. So you're
27:36
Speaker 3: seventy five years old. Pulling out rmds. You are making
27:39
Speaker 3: a contribution to a wroth, which means you It means
27:41
Speaker 3: you have to have earned income to do so. If
27:44
Speaker 3: that roth has been open for at least five years prior,
27:47
Speaker 3: so you have old wroth money and now you're putting
27:49
Speaker 3: new money in, then both the contributions and the growth
27:53
Speaker 3: can be removed at any time without any tax or penalty. If, however,
27:56
Speaker 3: you are establishing a new roth ira at seventy five
27:59
Speaker 3: years old, then it is only the contributions that can
28:02
Speaker 3: be removed at any time. The growth would have to
28:05
Speaker 3: wait for five years thereafter, very complicated answer, but that's
28:09
Speaker 3: what the letter of the law says.
28:11
Speaker 5: Well that's why I asked, though, because I appreciate your
28:14
Speaker 5: expertise on this, and I see such general discussion of
28:17
Speaker 5: it that's not as precise, so I really appreciate it
28:20
Speaker 5: very much.
28:21
Speaker 1: Thanks Mike, Thank you for the call, great question, great calls.
28:24
Speaker 1: Don't forget if you ever have questions, great data, start
28:26
Speaker 1: that conversation at COSS Financial their website six h eight
28:29
Speaker 1: four four two five six three seven. No charge for
28:32
Speaker 1: that initial get to know your appointment at Colss Financial.
28:34
Speaker 1: It will be complimentary to you. As a matter of fact,
28:36
Speaker 1: I want to hold on to that teleph number because
28:37
Speaker 1: it's time now for the Class Quiz Question the Week.
28:39
Speaker 1: It works like this, just a moment, I'll ask you
28:41
Speaker 1: the class quiz question the Week. You'll then have thirty
28:43
Speaker 1: minutes from the interday's program to call the Class Financial
28:45
Speaker 1: office right here in Madison. And again they're number six
28:47
Speaker 1: oh eight four four to two five six three seven.
28:49
Speaker 1: If you are the first call correct answer to whin
28:51
Speaker 1: this week's prize, which is say twenty five dollars gift
28:53
Speaker 1: cards two best buy this week's class Quiz Question the
28:56
Speaker 1: Week Is this true or false? According to the Federal
29:00
Speaker 1: Bank of New York a total US household debt, the
29:04
Speaker 1: total US household debt hit almost eighteen trillion dollars in
29:09
Speaker 1: the fourth quarter of twenty twenty four. Is that true
29:13
Speaker 1: or is that false? Telphone number six oh eight four
29:15
Speaker 1: four two five six three seven first garwth correct answer.
29:18
Speaker 1: When this week's prize again. That's Class Financial's office right
29:20
Speaker 1: here in Madison, their number six oh eight four four two, five,
29:24
Speaker 1: six three seven. Guys, it's always informative and it's always
29:27
Speaker 1: especially fun. Great to talk to you, guys. Enjoy the day.
29:30
Speaker 3: Thanks Sean.
29:30
Speaker 4: Thanks Sean.
29:31
Speaker 2: News is next right here at thirteen ten WIBA