During the past month I have received a lot of questions from different people about their personal money journeys. The questions have come from various sources such as emails, Facebook and my money class.
Here are a few of the questions I have received and my answers:
Jane asks: Should I roll over my old job 401(k) over into my new 401(k), a traditional IRA or ROTH IRA?
Answer: Great question Jane. To start off, a 401(k) is a tax-deferred account. So if you decide you want to move that 401(k) you need to move it to another tax-deferred account, otherwise you will tax or possibly a penalty for moving the money. If you move the money over to a ROTH IRA you will owe tax on that amount.
You really have 2 option good options. You can put the money into a traditional IRA and have control over which investments you choose, so you could choose low cost investments. Or you can roll the money into a new 401(k) with your current company. The 401(k) will most likely have higher fees that the IRA account but, you will benefit from faster compounding and easier management with all of your money in one spot versus splitting money between your new 401(k) and an IRA account.
What matters more to you? Ease of use with all your money in your new 401(k) or money control and lower fees with a Traditional IRA. How you answer that question is the account that you should go with.
Bobby asks: Currently, I am totally invested in stocks and bonds, but I heard about a lot of people investing in real estate. Should I take the leap and invest in real estate?
Answer: Hi Bobby, I love that you are interested in investing in real estate. One of the main reasons that people invest in real estate is the potential for passive income. Specifically in “retirement”. If you go the rental property route, you can rent your property and then you just have to maintain any issues that come up.
There are lots of different avenues for you to pursue real estate: residential or commercial. Buy and hold or house flipping. Determine which route you are going to take first.
Only do it if you are interested in real estate. You are going to be more successful if you want to learn about a topic, otherwise it just become a chore. Investing in real estate is definitely more time consuming that purchasing and index fund or a stock.
There is a large system of financing available in the real estate market. There is a different between personal debt aka credit card debt, and debt used to purchase an asset like a rental property. There is a massive financing system set up to help you purchase properties that you may take advantage of.
Do your homework before you purchase. It is easy to get sucked into a real estate money pit. So before you purchase or invest do your homework.
I personally love real estate investing and think it is a great way to build wealth. It is one of the only assets that appreciates over time. So I say go for it.
Rachel asks: Should I use a roboinvestor or do it myself?
Answer: I have looked into this option so many times. My primary job is the technology field so I am always seeing the new apps and FinTech companies that are popping up. I was definitely using Acorns at one point in time and have now currently use the M1 Finance.
For some people RoboAdvisors can be great. People that are fine paying a modest fee and do not want to mess with choosing their investments would do well to go with a RoboAdvisor. I call it: set-it and forget-it investing. Basically autopilot.
For me, I look at RoboAdvisors more like a savings account rather than an investment plan. You can use these accounts to invest large portfolios of more than $100,000. But I think they work best for people trying to save for an emergency fund or just build up their savings, because it automates your saving and investing.
You can definitely get lower costs by doing it yourself. And there are so many low cost, easy-to-use tools out there that make it so simple to manage your own money. Also doing it yourself makes you sit down and understand your money a little bit more.
I also think you can get the same or better returns that RoboAdvisors. They do not have a magic formula. You can buy and index fund or purchase individual stocks basically mimicking an index fund. You can easily find an investment account where you make free stock purchases and trades.
You can also do a Target Retirement Fund that has lower fees and automatically changes your asset allocation as you get closer to retirement.
So the real question is do you want to pay a modest fee and put your investment on auto pilot or do you want more control to choose investments and do it yourself?
Jackson asks: I am turning 50. Should I stick with my PPO health plan or start investing in an HSA and what should I invest in?
Answer: Howdy Jackson. I am a big fan of the HSA. It is one of the only accounts you can invest in without paying any tax.
How healthy are you?
With an HSA you have to pay most of the cost of your healthcare from you HSA account. So if you are going to the doctor a lot then the money will be coming out of your HSA account, so it may be more beneficial to have a PPO plan with a lower deductible.
You can also do an HSA one year and then change during the open enrollment to a PPO. If you think you are going to need more healthcare in the coming year. Think pregnancy.
If you worked 15 years and put in the max $3,500 you would save $52,500 you could use tax free for health expenses. Thats not even including gains from investments. Or save your receipts and reimburse yourself up to that amount.
Kiko Asks: I am finishing college with about $50,000.00 in student debt and I am finishing my degree in graphic design. What strategy should I use to pay off my debt?
Answer: Kiko, congrats on finishing your degree. I know you are going to do great things. I love that you are already thinking and planning of how you are going to pay off your debt. You will get there.
First you will want to make sure you know who your lenders are and where to make your student loan payments.
Start small. Consistently make your required minimum payment and then pay a little bit more. Paying more than the minimum will go a long way in paying downt the principal of your balance.
Once you are in the habit of making those payments, seeing your balance go down will give you some momentum to keep going.
Don’t go into credit card debt. Do not make your financial position any worse than it already is. Credit cards can be tempting and I always use them to make payments because they can provide a level of payment protection. But make sure to pay those cards off every month.
Once you are comfortable with budgeting for your payments increase the payment amount.
When you get a raise put that amount to your loan amount.
If you have multiple loan providers pay off the higher interest rate loan first, because it is costing you the most.
Remember that you are not alone. There are so many people in the exact same position as you. Talking about your debt gives it less power over you.
Focus on your career. The better you are at your work, the more compenstation you can charge and the faster you will pay off that loan.
I completely believe in you.
I have loved answering your questions. If you have a question for next time email me and I will do my best to respond.
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