Real Talk with Life After Grief Chris
Real Talk with Life After Grief Chris
Smart Money Moves You Should Make as a Teenager
When my 15-year-old godson Luka started peppering me with financial questions at a family gathering, I knew we had the makings of something special. What followed was an authentic, unfiltered conversation that captures the financial curiosity of today's teens and provides straightforward guidance that listeners of any age can apply to their own financial journeys.
Luka, already thinking beyond his years, arrives with thoughtful questions about building wealth from a young age. We explore the fundamentals of good money habits – from the simple yet powerful act of budgeting to the surprisingly effective "20% rule" for saving. You'll hear how small actions like mental math at fast food restaurants can build financial awareness, and why getting a job as a teenager creates lasting financial discipline.
The conversation takes fascinating turns through investment basics, with clear explanations of the S&P 500, diversification strategies, and the crucial differences between Roth and traditional IRAs. I share personal stories from my own investment journey, including the revelation that "if I started investing at 15, I would have been ahead of where I am now" – a powerful testament to the advantage young investors have through compound interest.
Perhaps most valuable are the reality checks. When Luka asks about real estate investing, I pull back the curtain on my own experiences – from barely breaking even on property flips to dealing with tenant nightmares including a police raid for marijuana distribution. These candid stories illustrate that wealth-building isn't always as simple as internet gurus might suggest.
Whether you're a teenager just beginning to think about money, a parent looking for ways to discuss finances with your children, or someone at any life stage wanting straightforward financial guidance, this conversation offers accessible wisdom without the jargon. Listen in, and take away practical strategies to strengthen your financial foundation today.
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Those are good money habits and I can assure you that not every 15-year-old has the ability to compute the math that correctly.
Speaker 2:Welcome to Real Talk with Life After Grief, chris, where we talk about relevant issues as it relates to individuals in grief as they navigate finances, and the advisors who help them. We help clients in grief navigate financial matters.
Speaker 1:Hello and welcome back to another episode of Real Talk with Life After Grief, chris, on this episode, I have a superstar. I didn't say that about his brother, but he is a superstar. So this is Luca. He is the sibling, the younger sibling, to Maddox, and he is also my godson, or you could say my nephew. Those are interchangeable.
Speaker 1:So Luca, at a family gathering, was harassing me about financial questions and was just picking my brain about financial stuff. So got the wheels going and I was like, hey, why don't I use the harassment that I was feeling and ask him to be on a podcast? He's laughing at me to be on a podcast and allow him to ask questions. And then I expanded that to his brother and his sister's going to be on too. So, luca, this is about you, my friend. All right, so I'm not saying your last name on purpose here. As I said to your mama as an agreement, I don't want to violate your privacy, and so tell us a little bit about yourself. What you do. You have a job, are you the man of the house?
Speaker 3:Tell us a little bit about yourself. What you do? You have a job. Are you the man of the house? Tell us a little bit about yourself. I'm 15 years old. I'm going to my sophomore year with my brother going to the Naval Academy. I am earning that title of the man of the house that is correct and I am starting to realize that money is more of a prominent part of my life and not just something I can ask mom and dad for me to spot.
Speaker 1:That is correct. I would agree with you. Luca is going to be the man of the house, regardless of his dad. That also resides in the house, but we've come to that conclusion that Luca is going to be the man of the house. So, with that being said, luca has developed a series of good questions that he's going to ask me and, luca, I'm gonna let you fire away, buddy All right.
Speaker 3:So my first question is what is the best thing I can do as a teen to start my financial journey? Get a job, Get a job.
Speaker 1:So I say that facetiously, but one of the best things that you can do honestly outside of earning money is to have good money habits, and this is something that I talked to your brother about is to have a budget. So do you have an allowance or money that you get from anybody on a regular basis?
Speaker 3:Not really. I just ask either my mom or my dad to put money on my green light whenever I'm going out with friends, and I'll get a specific amount in there.
Speaker 1:Okay, so green life, that everyone doesn't know that it's basically it's a card that you can put money into and you can give it to anybody, specifically for teens. So you have, what is it like a debit card, luca?
Speaker 3:Yes, a debit card.
Speaker 1:Yep, so it's a debit card. So if you had to track the last three months, how much money do you think that you've asked mom or dad to put on your green light? Zero, okay.
Speaker 3:I've been paying. I pay with cash most of the time.
Speaker 1:Okay, let me rephrase that. So how much have you gotten from mom or dad in the last three months, the last three?
Speaker 3:months to spend Yep, just me like with my friends. Yes, correct, I would say about $60.
Speaker 1:Okay, so $60 in the last three months, so about $20 a month. Is that quick math? Is that about accurate Give or take? Okay, have you gotten any money from anywhere else? No, okay, so I'm going to use that $60. And that's the reason I was asking questions. So I was trying to get a foundation. So when you were out and about with your friends and you got the twenty dollars per month, did you use all that twenty dollars every time you went out?
Speaker 3:every time I went out. No, my friends and I usually take turns on paying.
Speaker 1:Okay. So it sounds like at one point you went out and you got $20 from your mom and dad and didn't spend it. Is that accurate, okay? So what I'm backing in is to a budget. So anyone on the planet that has any money should have a budget, and a budget is very simple. So you took in 60 bucks, right, and so you didn't spend $60, which is a great habit, is a great money habit in advance. So the habit is to spend less than you make or you bring in. Okay, so in that instance and I'm putting the cart before the horse but in that instance now you have let's just say you have 20 bucks that's left over from that 60, and you can do something with that $20.
Speaker 1:And before we got on the call, luca talked about having investments. His dad has done some things for him. You could have taken that $20 and you could put that into your account. And there is another rule in finance it's called the rule of 72. About every seven years your money doubles, so that $20 that you saved in seven years and again it's invested, obviously when I use that rule of 72, and there's some returns that are behind that. But in general and I use that rule of 72, and there's some returns that are behind that, but in general. So in seven years you are 15 now and in seven years you'll be 22. So compounding that $20 would turn into $40, with you not having to do anything but having invested properly. That's what you can do now in regards to having a good money habit, and so it's just budgeting your money accordingly. And when you go out, this is another good money habit that I use, even with my boys. So if you go out, and let's say that you go, where do you guys hang out?
Speaker 3:We normally go to like fast food places.
Speaker 1:Okay, what's your go-to for fast food?
Speaker 3:Normally do. A make a bell run is what we like to call it.
Speaker 1:Okay.
Speaker 3:All right.
Speaker 1:Yep, I make a make bell, okay. So a good money habit for you and this is this goes beyond the budget is when you are going on your Mac bell run and you have your $20 is to always know in your head and be able to compute how much money you are getting back without having to use a calculator.
Speaker 3:And I say that what does?
Speaker 1:that mean? That means if your bill at Taco Bell I'm going to make this very easy math If your bill at Taco Bell is $5.50, I'm going to put you on the spot. Okay, and you give them a $10 bill, how much are you supposed to get back? Four festive, okay. So that's a good money habit. So when the math increases, if it's $8 and if your bill is $8.57, how much are you supposed to get back $1.50. $8.57 is the bill, so how much are you supposed to get back $1.43. Yes, those are good money habits and I can assure you that not every 15-year-old has the ability to compute the math that correctly.
Speaker 3:Because what happens? Yeah, I have my 20 bucks, maybe even 40 dollars, and my spending habit is how much? How much food can I get with this 40 dollars? Okay, which is obviously probably not the best spending habit?
Speaker 1:yeah, because if you're looking to have a good money habit now, if you have 40 bucks and you're out and about, it's going to be hard for you to spend 40 bucks at Burger King by yourself and Taco Bell. That's a lot of food, and so what I would look at if I were you. And another good money habit is to be conservative. So if you have 40 bucks, what can I buy with $20? Or what can I buy with $30? Cut off portion of what you are spending and I like to use the rule of you're trying to save money. Save about 20%. So 20% of your 40 bucks is what $8. That's correct. So I would siphon off eight dollars at least eight dollars to put in your pocket and then know that is not going to go anywhere and it's not going to go towards spending anything else. So I'm sure your parents wouldn't mind that you're taking advantage of the money that they're that they are giving you for good use. So those are some good money habits.
Speaker 1:I could get more detail into the budget For you. I think the easiest thing right now is anytime you get a set amount of money, I would siphon off a portion of that and I would use 20% as a benchmark, anything north of 20%, because that gets you in the habit of when you start working and you have a job where you can put money away for your retirement or whatever, you already know that 20% is an amount that you're going to be putting away and it compounds very quickly, very quickly, especially at your age. If I started investing at 15, I would have been ahead of where I am now. I only started investing, I think, when I was probably started in college. That's a very good question. Did I answer all of it? Yes, okay, what's your next question?
Speaker 3:Talking about that. Investing brings me into my next two questions. Okay, Investing brings me into my next two questions. I have an investment account through an app called Fidelity and my dad set it up for me. It feeds $20 into the investment account directly from my bank account every month. $20, $20. He keeps talking about how it's up because we put the money in S&P 500. And I'm like, okay, that's good. Should we take it out? Why don't you take it out? But he always seems to say just to let it ride out and I wanted to ask if you agree with this and why.
Speaker 1:Okay. So what I'm going to say first off is and I generally have to give you this disclosure that any time that you're seeking advice, you should seek the advice of a professional. Okay, and I'm going to throw your dad under the bus here. So what I would advise you to do yes, go to your dad. Your dad has obviously asked me, but throwing him under the bus. So my recommendation would be go to a professional through your dad and with your dad in turn, he will come to me and ask questions, but I do have to say that I'm saying it jokingly, but I do have to say that. And a professional, I'm talking about a certified financial planner. Basically, I had to go and get, go through a lot of schooling to get this designation for finance.
Speaker 1:So, beyond that, the S&P 500, the nuts and bolts of what your question is. So the S&P 500, it is a broad basket of stocks that invest in the top or, excuse me, I should say, the largest 500 companies in the US, and I'm just going to give you an example, because sometimes some of these companies, they could possibly float in and out of the S&P 500, depending on their size or whatever transpires within the marketplace. Coke, everybody knows Coke, that would be an example of one that could possibly be in the S&P 500. Pepsi are basically investing in those 500 stocks and typically over time there's no guarantee those go up. So the advice that your dad is giving you with regard to riding it out, you at your age can afford to take on more risk than an old guy at your dad's age. Okay, normally his risk would be lower, but that's not always the case. It's age-based and then what your appetite is and a myriad of other factors. So his advice is to ride it out. And what I would also slant that, as long as it's diversified and that's what I encourage my clients to do is we have a very methodic approach to when we invest for them and it's based on a lot of information that they give me. My advice because we've done a lot of planning underneath that is to look at the long term. So you don't need that money currently and let's just say that S&P 500 was properly diversified with some other things.
Speaker 1:So I wouldn't necessarily make the recommendation for one of my clients to go 100% into the S&P 500, again because there's other metrics you don't have. You're not paying for a house payment, you're not paying for a car payment, You're not paying for insurance, so the money that you go, that is going in, can be very you can take a lot of risk on it. And so I understand where your dad is coming from and he's just saying leave it in there and just let it ride. And so historically, without getting into numbers, the S&P 500 is just grown over history and again, there's been down years, but overall it's grown throughout history. And so that's why he's saying just to leave it and to ride it out. When you get older and when you have other things that are drawing on your income and you don't have the luxury of just letting it sit there and ride it out, and maybe you're starting to plan, then I would look at really divers&P 500, you're not diversified, I can tell you that.
Speaker 1:The other thing too. So say that the S&P 500 draws down one year and I'm just going to give you a number. So it draws down 10%. So you put in 20 bucks a month. Right, that's what you put in a month, 20 bucks a month. Okay. So 20 bucks a month times 12 months, how much do you put in? 240. $240 a year. So you put in the $240 in one year and you have the market retracts by 10%. So what is that $240 worth now?
Speaker 3:If 10% is deducted, that is correct 216?.
Speaker 1:I think you're pretty close. We'll roll with that number. Yep, okay and so. Yeah, now I have $216 in that account from that particular calendar year because it's drawn down. That is the danger in being not diversified. So I'm going to give you something that's a little bit counter to that.
Speaker 1:So say that $240, now you split it and you only have $120 that's invested in the S&P 500 and it draws down 10%. So let's just make it an even number Very easy. So say that now you have $100 of the $120. Okay, the other portion is invested in what I would consider fixed income and something that's a little bit safer than securities calendar year because of the way that the market worked out. That other $120 that you have of the $240 is invested in a manner to where you're gaining interest or you're getting more dividends, and it's not necessarily losing money, it's just getting you, or it's not necessarily gaining money but it's getting you interest. And if it got you 4% interest on that money and you only lost $20, but now you're 4% up on the $120, now you're able to offset that drawdown on the $120.
Speaker 1:I see you shaking your head and understanding how that now makes sense and why you diversify and you typically don't want to put your eggs, all your eggs in one basket, taking more risks though the way that you're doing it if in one calendar year that bumps to 20%. So now you lost 10% on the 240 in one year and it went down to 216 using your math, and then the next year it went up 20%. So now your net loss over a two-year period is not a net loss, it's a net gain of I said, 20%, so it's a net gain of 10%. So again, that's why I advise speaking to a professional, because that's what I do for folks is I monitor that risk and over time we want to make sure that they're getting what they need out of the account and I, as a financial professional, I can't have my clients take undue risk. One, they would fire me. Two, it's not what's in the best interest of what they're doing. All make sense. Yes, I see you have a serious face on now.
Speaker 3:Oh, this you gotta lock in when you're talking about money, all right, which did I answer your questions there?
Speaker 1:Yes, okay, what's your next question?
Speaker 3:My next question would be I understand the process of investing money, okay, but I don't understand when you take that money out. Or do you take it out all at once? Do you take just a little bit out? How does it become profit?
Speaker 1:Okay. So you've asked a couple of questions. I think probably without knowing that you've asked a couple of questions. I'm going to start from the beginning. So how to invest a schedule and what should that look like, and then I'll back into. When you take money out, what does the profit? And I'm going to add in taxes and then just correct me if I miss anything. So when you're investing, the ideal way to invest is on a schedule. And so you're familiar with the 401k. You've heard of 401k, yes, okay, so a 401k.
Speaker 1:When you're working for I'm going to use Taco Bell, or you go to McDonald's or Burger King, those employees have the ability to invest in a 401k and it's on a schedule. They get paid every two weeks and they pull money out of their paycheck and invest into their 401k the way that they set it up, and to their 401k the way that they set it up. And it is virtually impossible to time the market, to see when the market is gonna go up or it's gonna retract or anything like that, and my education has led me to the best opportunity for an investor is to invest over a period of time and invest on a schedule. If you invest every two weeks. If the market is down, you invest when it's a low point. If it's up, then you're invested at a high point, but you take advantage of the low points at a regular basis when you invest on a schedule, and so that's number one. So you don't wait to try to time when the market is retracting, because if you do that and I'm on a schedule and I'm investing every two weeks if the market doesn't retract for six months or a year, you've now lost out on six months or a year of investing, being invested in the market and taking advantage of those bumps, or taking advantage of what I talked about getting some dividends and some money. That's just out there, because you're in the game, so to speak.
Speaker 1:The next part that you had asked is when you take it out. There's really no good answer as to when you take it out. You take it out when you need it, and you can shift money around into a different investment if you feel that, or you're guided that your money needs to be shifted into something that more aligns with your needs, and so when you do take money out, if it is above where you paid for it, then you're generally going to pay taxes, and the taxes are. They're called short-term gains and long-term gains. So basically, short-term gains is basically anything under a year. If you buy Coke and you buy it at $100 and it goes up to $120, you're going to pay what's called short-term gains, and short-term gains is your ordinary. It's called your ordinary income level. Basically I'm not going to get too tax heavy here, but it's basically at your ordinary income level. And so the IRS likes it when you hold it longer term. And so if you hold it longer term, they give you favorable tax treatment. And it gets a little bit more convoluted if you try to take money out of a retirement account, because they're going to not only tax you at ordinary income but they're also going to penalize you.
Speaker 1:Some reasons why you would take money out of an investment If you were looking to buy a house, if you're looking to purchase a car or something like that, or it's a large purchase that you need, or there's an emergency that happens. So I'll tell you what I use. Your dad jokes with me that I bought this truck last year and so he has other things to say about my truck. I use my what I call after-tax account. It's not anything that is qualified with the IRS. I utilize that to make large purchases or to help in those large purchases, and so that money sits on the sideline and I'm just investing over time and there's no real need for it.
Speaker 1:But you need a vehicle, and so where am I going to draw that money from? It's not a situation where there's an emergency and I have to suddenly pull that out, and I'm going to add that to don't let me forget about an emergency fund, and I put money aside and I constantly invest it when I do have a need or a large purchase that I can draw money from that, and that money just sits in an account and it's diversified and it just grows until I need it. And so, car, we had to do something with the house. As far as plumbing, air conditioner, I can think about, but large ticket items that's generally what I invest those funds for. So does that answer your questions about investing?
Speaker 3:It does. Thank you Taking it out when necessary.
Speaker 1:That's correct. Yes, also, the temptation is if the market is not going the way that you want is, if the market is not going the way that you want, the temptation is to pull it out, and I usually advise against doing that, because you don't know when to put it back in. You've taken all this time and energy to invest it and invest it, and then emotions get involved and you get scared, and it's natural, and you just want to pull it out because you're scared of the unknown. And that's again what I do. I come back and say we have invested this properly, we know that this is going to happen. It doesn't feel good.
Speaker 1:When you in theory lose money that you invested, but invested properly, and it's over a period of time, then that loss is only that particular calendar year and then the other years it should look like you are going up in the account Emergency fund. We didn't talk about that. I'm gonna volunteer this information. So I always advise having an emergency fund At your age. It's a good money habit. But an emergency fund normally would be for someone that is in their income, earning years and they have other responsibilities, how Car, and if you lost your job, you need to pull money from one of those source to be able to keep yourself afloat. So of the $20, excuse me the 20% that I had recommended siphoning off for you, it's not going to necessarily make a difference, but I just throw it out there that you should think about an emergency fund too. But again, you don't have any expenses. Generally, an emergency fund would cover six to 12 months, depending if you were married or not, of expenses if you were to lose your job or something catastrophic happens.
Speaker 3:Do most people have an emergency fund, or is that just something that you advise to people, because most people that don't have it end up in not a good position?
Speaker 1:Yeah. So I'm going to be careful not to assume, but what I know in the research that I've done is that most people don't have an emergency fund set up aside. I advise that because I've seen a lot of stuff that's happened, and there's a lot of stuff that's uncontrollable. I've had clients that have had to go out on leave from their job, and when they go out on leave they don't receive the same income that they had before, and whether that leave a disability or something of that nature so their expenses are at a level and it may be only temporary. Now they need to pull money to keep where their expenses are, and so if you have an emergency fund, you're able to do that for a short period of time. But if you don't, now you're going to have to get in a situation to where you're going to have to borrow that money so you're able to support yourself.
Speaker 1:So I'm going to give you a real life situation when Aunt Anne-Marie and I were expecting Eli and his brother, and so Anne-Marie had to go out on a short-term medical leave because of the complications of losing Christopher, and so she couldn't work for several months and she had to stop working earlier than we had anticipated. And so in that situation because we had an emergency fund and not expecting her to stop working so quickly we had anticipated and planned for it. But we didn't anticipate it when it happened and so we didn't have to borrow to keep things afloat. We just looked at the emergency fund to offset where we may have had a shortfall. Then in that situation, it prevents us from borrowing and going into debt.
Speaker 3:That's very smart. I think my dad has brought that up a few times and I definitely like that.
Speaker 1:One of the things that you had asked in regards to what are good money habits now and what can you do, and I was half joking and I said get a job. But I was half joking because there are ways that you can earn income now as a 15-year-old, getting ready to drive in less than a year by yourself. So I actually taught a class to some middle school students probably about a year ago, a year and a half ago, and they asked me the exact same question what can I do now for good money habits? And this group of middle school students were not as fortunate, I guess I could say, luca, as you and I, and so I was real with them in regards to some of the things that they can do now and I'll extend this to you and I'll extend this to your two cousins that do get paid by me, and so some of the things that I encouraged them to do is to start making your own money, and you can do that a myriad of ways, and in their situation it may not have been feasible for them to go to their mom and dad to ask for money or to do a job for them. So we looked outside of the scope of what they could do. And so I said many of you have siblings or you have cousins and you could babysit. That's one thing that you could do. The other thing that you could do you could go and do something for your neighbors. Maybe you'd mow the grass, maybe you could do someone's hair. I'm not expecting you to do that, luca, but it's just being outside of the box. And so I'm an entrepreneur and I've had to think outside of the box and how to make money for a long time, and innately, because of my life experiences, I've been very good with money, but I've also been able to make money. So I'm going to extend that to Eli and Gideon. They work for me on a regular basis, and so we have an arrangement to where they do things for me and then they get paid.
Speaker 1:One of the things that I hate to do is I hate having to shred any paper. It's very tedious for me, the shredder is low to the ground, and so it would take me an hour and a half to just shred stuff stuff we get in the mail or what have you. And so what do I do with them? And they came up with this. They said we'll take it off your hands if you pay us for it Said that's a great arrangement because something I don't want to do and I will pay you for it, gladly pay you for it. So I pay them in 15 minute increments and I think I pay him $2 every 15 minutes. And whenever I need shredding done and it's pretty often they say take it off your hands, daddy, and let's have our agreement the $2 every 15 minutes and the shredding Luca honestly takes between the two of them it takes about an hour and a half. Oh, wow. So it's a lot of shredding. So it's things like that to be able to get creative.
Speaker 1:And so now they have money, and I'm going to extend this. So now they have their money. So if they got $2 every 15 minutes in an hour and a half, how much money would that be? Each one of them? Luca, 12 each, 12 each, okay. And so they get $24, right, a piece.
Speaker 1:So now they have decisions to do with their own money and, because they're a product of me, they take a portion of their money and they put it into their savings account and they put a portion into their wallet.
Speaker 1:And remember when we talked about at the beginning of the podcast. If you have $40, you get from your parents and you're going out to eat, know that you only have $30 as opposed to that $40. So what they do one of the good money habits that they do is if they get that $12, they're not putting that $12 into their wallet. They are putting a portion of that money in their wallet and it was almost like they only made $6 and the other portion goes into their savings account. They're conscious of doing that. So they have those good money habits already and it's not something that I have to do above and beyond for them. It's not like I'm giving them money. They're doing a job and they understand I'm working for this money. That's one of the things that you can do now and I'm sure Sean would be happy to pay you.
Speaker 3:Yeah, I'm sure he will too.
Speaker 1:He used to offer me stuff around the house, but I think if I offered first, he would for sure let me do it for some money. Now you have done something to increase your own monetary amount. That would be a great money habit to have now, and then you can start directing. Okay, I'm now up to, let's just say, 60 bucks a month and now I'm directing what's going into my investment account, and now you have a little bit more ownership and it means something more to you, because it's something that you have earned versus it was just given to you, and it just means more to you. So make sense, yes, sir. So what other questions do you have for me? Have any others come up? So we just started chatting again.
Speaker 3:Yeah, just so far as to. I am going to be turned 16 soon and I will start driving, do?
Speaker 1:you have any recommendations of an easy job that I can drive to and still like balance out my schoolwork and practice, or whatever? One that comes to mind that I know a lot of teenagers take advantage of is Publix. I hear that a lot. That is probably the one that comes to mind. I think back to my first job and I would not want anybody to have my first job. Your dad and I shared the same first job. First job was a job that made you appreciate your education and it made you never want to look back and do what we had to do.
Speaker 1:But I think that's an element of anyone that starts working at an early age, because you start out. Let's just say that you start working at Publix and I don't know what they pay per hour, but they pay you based on where you are in life and you have when you turn 16, you will have completed your freshman year and part of your sophomore year, and so imagine and this was what the advice that I got imagine having to do that job and having to raise a family. How hard that would be If you're getting paid. Let's just say 15 bucks an hour. I don't know what they pay, but $15 an hour. There's 2080 hours in a working year. Times 15, I'm just doing some math so that's $31,000. That's not going to go a long way to raise a family or to support a household.
Speaker 1:So now those numbers start to really make sense because at the time your dad and I started working at 16, we were making the same amount of money that grown men were making, but they were having to support their families amount of money that grown men were making, but they were having to support their families. And so that made a huge difference for us, because this money is good for a couple of 16-year-olds, but I can't imagine having to support a child on that. And our money it wasn't that great. It was enough money for we could buy gas, we could go hang out on the weekends, we could buy clothes and that was pretty much it. I saved a good portion of that, but I couldn't imagine having to support a family on that. When you start working and you start earning your own money, it really starts to make more sense because you have that experience. What else do you have around when you turn 16, other than possibly a good job that you could get?
Speaker 3:Do any other investment or bank accounts open up, because I know you have to?
Speaker 1:hit a specific age for certain ones, not necessarily at 16. Can you open up your own because you're a minor, until you turn 18? So there's strict laws and regulations around protecting minors in particular. So what I remember from my banking days is that you're going to have to be 18, but your parents can open up an account. They just have to be somehow linked to it. Most likely, you know there'll be the guardian of the account, so to speak, but you can act on the account depending on the bank, as if you were the only one on the account. They just have oversight on the account. So there's nothing that I would really change, because the bank account that you have it's either a checking account, savings account, money market account, but they do the same thing for you, whether you have a parent on it or not.
Speaker 3:It's just your access and your ability to do things, gotcha, and I just want to backtrack from when we were talking to the S&P 500. I wanted to ask you what a Roth IRA is there's no backtracking.
Speaker 1:There's no backtracking here.
Speaker 3:So I just wanted to bounce off of what we were saying. Go ahead with your question. What is a?
Speaker 1:Roth IRA. Go ahead with your question. What is a Roth IRA? Okay, a Roth IRA is an IRA that you put in after-tax money. So there's a traditional IRA and then there's a Roth IRA. So I'm going to try to break this down. Your brother had the same question.
Speaker 1:So when I go to work and I make $1,000, the government takes a portion of that. Let's just say they take 20% of that. Okay, and so now I only have $800. And so I can put that money into a Roth IRA, and there's rules and regulations in regards to how much you can put in and there's some other things. But I'm just using this math for the explanation. You can put this money into a Roth IRA. The money grows and it grows until you're able to take it out. And take it out is deemed by the IRS and you can take it out, Essentially Not having to pay taxes on it anymore, because you've already paid taxes on it on the front end. So say that $800 grows to $1,600. So in the Roth IRA, you can take that money out and you're not necessarily taxed on it because you've already been taxed on the money. So that's the benefit of the Roth, as you've already been taxed on the money. So that's the benefit of the Roth.
Speaker 1:A traditional IRA instead of that same $1,000, you get the tax break at the beginning because you put that money in to the traditional IRA and it grows tax deferred until you take the money out. You're taxed on the time when you take the money out. So the major difference between the two is where you get taxed. Traditional, you get taxed when you take the money out because you're not paying taxes. You're getting actually a tax break when you're putting the money in. It reduces your ordinary income depending on where your income level is and a lot of other stuff garnered by the IRS. But a Roth IRA it grows and when you take the money out you're not having to pay on that money tax-wise at the other end. Does that make?
Speaker 3:sense. Yeah, so is that like a savings account, or what's the difference between that and a savings account?
Speaker 1:The difference between that and the savings account. A savings account, you can take money out whenever you want to, and an IRA, you cannot do that. So an IRA excuse me, yeah, an IRA. The Internal Revenue Service garners when you can take money out of it and if you take it out at the wrong time, they're going to penalize you. There'll be a 10% penalty. So that's the difference. You can't take the money out. You cannot use it as a savings account. You can't just go in and withdraw it like the money in your savings account.
Speaker 3:Okay, that makes sense.
Speaker 1:Yes, so yeah, those are very good questions.
Speaker 3:Yeah, my dad has me set up on a Roth IRA. I'm pretty sure already you can start pretty young, right?
Speaker 1:Yes, you can start very young for a Roth IRA. Yep, what can you do now to start good money habits? Oh, you're asking me the question now.
Speaker 3:Yes, I am. Oh, what can I do? Get a job? Okay, I could use the 80-20 rule. That's correct. Save 20% of whenever I'm going out and of my spending money that I earn. I could ask around the house or the neighborhood to find ways to get money and, again, save some of that man you should be teaching this stuff, right yeah.
Speaker 1:So what kind of student are you in school?
Speaker 3:I would like to say I'm a pretty prolific student.
Speaker 1:Yeah, what does prolific mean? Yeah, I'll honor all honors, ap pretty prolific student.
Speaker 3:Yeah, what does prolific mean? Yeah, all honors, ap is just all that good stuff.
Speaker 1:All right, I think I can tell by talking to you and your articulate questions. I'm going to read something for you in regards to a Roth IRA. So I'm going to give you some very specific language, and I just pulled this up. So a Roth IRA or individual retirement account is a retirement savings account that allows you to contribute after-tax dollars and potentially withdraw them tax-free, while you don't receive an immediate tax break. That's what we just talked about for your contributions. Your investments can grow tax-free and you can generally withdraw them tax-free and penalty-free after the age of 59 and a half and once the account has been open for five years the 59 and a half and the five years. That's the rule that the IRS puts in place.
Speaker 3:Okay, so I have a question.
Speaker 1:It uses the link.
Speaker 3:What? Yeah, go ahead. It uses the question you can generally take it out tax-free. What does that mean?
Speaker 1:You can't always take it out tax-free had not been open for five years, and let's just say that you opened the Roth IRA at age 59, and then you decided to take the money out at 60,. There may be a gray area there, because there's a combination of two things that you're responsible for doing there. So anytime and I have to give this disclaimer, anytime you are dealing with a Roth IRA or a traditional IRA and you're concerned with the tax implication, I would either seek someone like myself, a certified financial planner in combination with an accountant, just to make sure that you're not stepping into a minefield there and you do something that you can't recover from, because everyone's situation is individual and it could change depending on someone's individual situation. Okay, got it. Yes, sir, all right. I asked you and you said you didn't have any more questions, but you had another question you have another question so does that apply to just a normal IRA as well?
Speaker 1:Yeah, so a normal IRA. You would have to take the money out after 59 and a half to receive favorable tax treatment. And so a normal IRA, a traditional IRA? It's just the opposite, because when you start taking money out of it, you are taxed at your ordinary income level. Remember I talked about normally in that situation where it was a,000 and you're taxed on the front end 20%. Well, a traditional IRA. When you take the money out, you are now taxed at 20%, whatever your tax level is. Wait. So why would somebody want to do that? Why would someone want to do a Roth versus a traditional IRA?
Speaker 1:No, I would or vice versa, yeah, vice versa you can argue both sides of the coin, so a traditional IRA, no, or vice versa, yeah, vice versa. You can argue both sides of the coin. So a Roth IRA? In theory, the account would be growing exponentially and at the end you wouldn't have to pay taxes on it, right? In theory? On a Roth IRA A traditional IRA you would have to.
Speaker 1:So in theory, you could argue to have a traditional IRA because your tax bracket is arguably going to be lower, a lot lower, when you retire and the taxes are going to be minimal at that time anyways. Or you could have a Roth where at that time you're not paying any taxes. So it's really again to anyone's individual situation based on taxes. Say that's probably the crux Are you going to pay taxes at the beginning or are you going to pay taxes at the end? So lots of folks that I speak to have personal views of either or. But when I get in the mix, I have to look at and say is it better for you to take a tax break on the front end or take a tax break later on down the road?
Speaker 3:Okay, that makes a lot more sense when you explain that. Yes, you say that both saving accounts grow exponentially. How, both iras, yeah, like how, once you put money in, how does that money make money for you?
Speaker 1:man, you're asking some really good questions. So your ira could be invested in a whole bunch of stuff. Okay, it could be simply a savings account, a high interest savings account. You could have your IRA invested in the market. You could even have your IRA act as a liaison to buy property, and it's a little bit more complex. But your IRA, it's totally an investment vehicle and you have the ability to almost be able to purchase the investments that you want, and it doesn't necessarily have to be a liquid investment. It could be a physical real estate. There are some organizations that would allow you to do that.
Speaker 1:So I could buy within my IRA. With the right dynamics with the IRS, I could go out and I could purchase a home, and it would be a rental property, obviously. But anything that is done within that rental property, it all has to pass through the IRA. If I buy it, I have to use the money from the IRA. If I service it, I have to use money from the IRA. If I get income from it, that has to go back into the IRA. It's almost like your own bank and you have to do things like that. You can buy other things within your IRA, too, that are considered investments.
Speaker 1:The most common though yeah, the most common one is either to have your savings account something like that, something that's FDIC insured by the bank, or you purchase something in the market, so to speak, in the investment market. Good questions, Thank you. What else you got?
Speaker 3:My friend's parents. They do well, but on the side they do real estate. Okay, and they make a lot of money doing real estate and I always jokingly nag on my parents like why don't we do that? But it actually seems like a great way to make extra money.
Speaker 1:Okay, so what's your question around that so?
Speaker 3:is it just? I know it's not easy, but is it something that most people could do on the side with also having a full-time?
Speaker 1:job? I'm going to say probably not. I'm going to give you another personal example. So you probably didn't know this about me, so or you may have no part of it. So when I started working for the bank, it was Bank of America back in 2000.
Speaker 1:Fast forward a couple of years 2003,. Yeah, 2003,. Anne-marie and I bought our house. I am generally a risk taker and I saw where the market was headed and I decided to buy my first property, and I'll call it 36th street, okay. And this property, in theory, was worth $40,000 and I bought it for $20,000. So that's a pretty good spread, right? Yeah, pretty good spread. It's worth 40 and I bought it for 20. That's great, yeah.
Speaker 1:The reality is I was trying to flip this property and I bought it with the money that I had in my existing home the equity and I had to sit on that property for eight months and I had to sit on it. I didn't really have to do anything other than buy it and just sure it up. But the things that were so unknown within that dynamic were if there's a home that you have to insure and the insurance company knows and understands that it's vacant, they're going to charge you a lot more for insurance, probably three or four times the amount of insurance. So say, your parents, on your home, the insurance on a yearly basis is, let's just say, $2,000. In the case of a vacant home it would probably be close to $8,000. So now in that dynamic where I bought it for 20 and my insurance was I think it was two or $3,000, unbeknownst to me Okay, so now that spread starts to dwindle.
Speaker 1:So now let's just say I'm at my end is $23,000. Okay, then I'm having to do some repairs. There was a hurricane that came in and I had to go clean it. There's some other stuff in there that I had to do. So say, I spent now another five thousand dollars. Let's just say let's just cap it at 30, and so now my spread is at 30 to 40, now only have 10,000, and now I have to pay taxes on it because it passes the time where I need to pay real estate taxes. So the taxes I don't know say we're another thousand bucks or whatever it was 2000 bucks, and so now my spread is dwindling more. And then I finally find somebody that's really willing to buy it. They're not willing to buy it at the price that I thought that it was worth they're going to offer me because it was in a bad neighborhood, a very bad neighborhood. It was off Orange Blossom Trail.
Speaker 1:And I think I sold that property and I'm just going off of memory I think I sold it for $32,000. And so I made $800 on that property. You know how much time and energy and I put into that property. I put a lot of time and energy.
Speaker 1:Yeah, so it's not as easy and I had a full-time job and so we didn't have kids at the time. I'm going to fast forward that because I learned a lot from that experience. So I bought other properties and I managed those other properties, but in doing that I rented them out. I didn't go in the mindset of buying them and trying to flip them, but having to rent them out. I had to meet people before I went to work. I had to meet people at lunch and I had to meet people after work and then if something went wrong with the property, it was my responsibility and so I'm on the hook for the mortgage and I have to find somebody to rent the property. At the same time you can have a property manager to do that, but they're going to take a piece of the pie and I'm all about numbers and they generally take about 10% of whatever the rent is, which could be a lot Right. Plus, they take generally like the first month's rent or whatever. My point is. It is not that easy because I've been a landlord and I've done a lot of that stuff for a very long time and generally what I say to folks, if they're going to venture into that that they better be ready to hustle. It's not just all cut and dry and it's not really that easy. You can make some money, there's no doubt about that but you have to be ready for the unexpected and there's a lot of windy turns.
Speaker 1:I'm going to give you another example, since you asked this my parents. I think that Anne-Marie and I bought my parents' home before they were starting to dwindle in health, and I bought their home for a myriad of reasons. I needed a facility to be able to fund them when they ran out of money, able to fund them when they ran out of money. So after they passed away, we still owned the house and the home was underwater, and that's an investment. It is 100% an investment. And so then I rented the house out. And when I rented the home out this is going to blow your mind it was just some older college students, probably in their late 20s, who had their parents co-sign One of the college students. He got caught dealing marijuana large quantities of marijuana and the police raided my parents' house A full-on raid and they found $14,000 worth of marijuana in one of the rooms there. That's something that you can't predict and something that you just have to be ready for, and so luckily, I had a real estate attorney and then I had a defense attorney at my side. My real estate attorney gave me some very good advice, and my defense attorney put me in a situation to where the house wasn't seized.
Speaker 1:So think about that you have a house that has a mortgage on it and you're trying to get income on this house and the government seizes it, and so now you still have a mortgage on a house that gets no income, and what do you do with that? Now you still have a mortgage on a house that gets no income, and what do you do with that? So those stories and I got a thousand other stories that are real stories when you start renting homes, I could tell you stories where a tenant threatened me. I had to deal with that.
Speaker 1:It's not as easy as sometimes it's put out to be. There's a lot of work involved. There can be a definitive monetary benefit, but there is a lot of work involved. Does that answer your question? Yeah, yeah, but no doubt there can be money made in real estate, just as there can be money made in lots of stuff that you're doing in life, but you have to be ready to work at it Right and accept the lumps and the bruises that come along the way. Any other questions? Not unless you have a question for me. No, I don't. So to give you an idea, I'm watching Luca right now and he has his muscles out today. Absolutely, it's the gun show today. All right, luca, I appreciate you.
Speaker 3:Thank you for having me.
Speaker 1:Yes, and I hope you learned a little bit today.
Speaker 3:I did I definitely learned a lot.
Speaker 1:Yes, so now you can go tell your dad some stories that he may have not heard or he may just have ignored me. So when I was telling him All right, that's all I got for you, all right, thank you guys. Yes, you're welcome.
Speaker 2:And for the rest of the listeners this is one of the other ones I'll probably have another couple of guests on and or our firm. Head on over to Life After Grief FP. That is Life After Grief FP. The FP is for financial planning. If you are an advisor looking to emotionally and financially work with your client in grief, or if you are a client looking to get your advisor's head in the game, head on over to LifeAfterGriefConsultingcom. That is LifeAfterGriefiefconsultingcom. That is lifeaftergriefconsultingcom. Any related information referenced in this week's podcast will be located here in the podcast section.