287. The Financial $tuff They Don’t Teach You in School

In this episode of A Wiser Retirement® Podcast, we talk about financial concepts that most people aren't taught in school but are essential for everyday life. From how taxes work to whether buying a home is always the better choice. We tackle common misconceptions that can lead to costly mistakes, and offer practical advice to help you make smarter financial decisions.

Related Podcast Episodes:
- Ep 46. Financial Terms Everyone Should Know- 
- Ep 215: Happy Financial Literacy Month! 

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Transcript

Common Tax Misconceptions

Speaker 1 0:00

people think that a big tax refund is always a good thing , and what that really speaks to it's a free loan to the government and it's probably an issue with your withholding right . So you want to make sure that that's that number is as close to zero as possible . You don't want to owe anything . You don't want to . You know you don't want to owe , obviously , but you don't want to get a huge refund either .

Speaker 2 0:27

Welcome to a Wiser Retirement Podcast . Are you curious about the financial stuff they don't teach you in school ? I'm Casey Smith . Today I'm joined with Senior Financial Planning Associate William Metcalf . Each week , we bring you practical advice on retirement , investing and planning for your financial future . Don't forget to subscribe to the podcast wherever you're listening . Let's get started . Hey William , hey Casey , how are you doing ? Good ? So it's a countdown to meeting your baby , baby , metcalf Yep . Yes , girl .

Speaker 1 0:55

Baby girl , baby girl .

Speaker 2 0:56

Yeah , when's , when's , what's the date ?

Speaker 1 0:58

July the 14th .

Speaker 2 1:00

Woo , yep , she'll be ready to go , she'll , she'll be so ready to go to the hospital .

Speaker 1 1:05

That's a hot baby exactly so Abby just had , my wife just had an appointment yesterday and the baby was measuring ahead of what they were basically predicting . I had a 32 week appointment , so maybe the baby will come a little early so we'll see .

Speaker 2 1:22

Our first baby was a July 10 baby and has a miserable summer for everybody , yeah yeah , well , all right full time here's . Here's what we're going to start with today . Um , I put in my phone here five pieces of advice for a new dad okay , all right so I try to keep it on the humorous side , okay , number one um , sleep is for the week . Just remember that . Sleep is for the week . So forget about eight hours at this point . 20 minute nap .

Speaker 1 1:50

I'm getting it in now .

Speaker 2 1:52

That's what I'm doing you're trying , you're accumulating sleep hours so you can use . Use more um , also too , is you ever notice that dads kind of have a dad sway ? You know , dads don't stand still . Okay , you know , because you're holding the baby . You immediately start kind of like thinking , okay , sway you know , dads don't stand still , okay you know , because you're holding the baby . You immediately start kind of like thinking , okay , we gotta bounce just make sure , and you don't you don't

Speaker 2 2:10

lose yeah , you don't lose that sway . Okay , these old guys , and they're standing there kind of bouncing around you know , I think I have noticed , remember , like on the braids rocking leo . You know he'd always sit on the bench and he would do this yeah , right , yeah , it doesn't .

Speaker 3 2:23

It doesn't stop , man , yeah embrace that .

Speaker 2 2:26

Okay , um , also to baby . Talk is going to invade everything no one will talk normally at your house , ever again good to know it's gonna be .

Speaker 1 2:34

I'll prepare myself now look at your little baby I'll start preparing .

Speaker 2 2:40

Yes , you're gonna have to get used to that and um right . Mr Snuggles and you know all that kind of stuff . Uh , also too , I think as any child gets older , you become a jungle gym . My kids today go . How come you never get in the pool ? And I'm always like because you guys ruined it , because I could just get in a pool .

Speaker 2 2:59

You guys were like climbing all over me , I had red marks and scratches , and I just became the uh , the the jungle gym , but I , I think , the um . I think the coolest part about being a dad , though , is there's no official paper license for this . It's a , it's a known thing , but it's the uh lifetime license to tell dad jokes .

Speaker 1 3:17

Okay , so before it's just amateur hour yeah , hour , yeah .

Speaker 2 3:25

But now you know really got to tell the worst you can tell the worst shows ever and people just have to giggle and you get a pass , so hopefully , those help you out .

Speaker 1 3:29

Okay , yeah , that's helpful , helpful information .

Speaker 2 3:33

All right , let's get into it . Uh , we're going to talk about stuff , financial stuff . They don't teach you in school . You know we have really smart clients and when they come in , even even they , uh , uh , struggle with some of these . So so , hopefully these are all be on topic . Uh , let's talk about taxes first . Yeah , Um , marginal tax brackets .

Speaker 1 3:56

Yeah , I think the the most common thing that I hear is that somebody so this is actually a story that I heard somebody recently tell me that their mom or their dad actually did not take a raise at work because he thought he was going to get bumped into the next marginal tax bracket and then pay all this extra tax . And it's like that doesn't really work that way , right , right . So your dollars from the bottom tax bracket ? That way , right , right . So your dollars from the bottom tax bracket let's just say 10% up to 23,000 , they only get taxed at 10% and then the next amount , so that amount over 23,000 , gets taxed at the next bracket , and so on . So your entire , all of your earnings are not getting taxed at 24% when you cross into that bracket . Right ?

Speaker 2 4:42

Even on TurboTax they tell you what your average payment was so even if you're in the 37% tax bracket , you don't get all your money at tax at 37% . Your average is probably around 24 . Exactly .

Speaker 1 4:54

Yeah , so that's a big one . That I hear is like you're still . If you're still making more money , then that's probably a good thing .

Speaker 2 5:05

You know , I explained it this way to people who go oh well , you know I don't want to make um , I don't want , I don't want to do any extra work because I'm getting extra pay . It's just all goes to taxes .

Speaker 1 5:12

Right .

Speaker 2 5:12

And it's like no , it doesn't . The worst case scenario 50% if you do state tax , local tax and the federal tax bracket , right . So so if you add up all that stuff , um , you'd still have 50 cents more . Right Then the one before you started the day .

Speaker 1 5:27

And yeah , it hurts to hear that 50% of your money is going to you know taxes , so I don't want to downplay that .

Speaker 2 5:32

That's the only people who are making over 600 grand a year . Right , I mean for for most normal people . Uh , you're probably keeping 75% of it . Exactly , you know , and that's that's not even talking about deductions , and what happens is you get extra money , but you don't have tax withheld so you get to the end of the year and you have a bigger tax bill and you think , oh , I made an extra 10 grand . I had to pay 9 000 taxes . That's because something's wrong with your withholding .

Speaker 1 5:56

Exactly that's the problem and that's kind of going right into the next thing we're going to talk about , which is you people think that a big tax refund is always a good thing . Um , and what that really speaks to .

Speaker 1 6:08

It's a free loan to the government and it's probably an issue with your withholding right . So you want to make sure that that's that number is as close to zero as possible . You don't want to owe anything . You don't want to uh , you know you don't want to owe , obviously , but you don't want to get a huge refund either . Correct that's probably the best situation there .

Speaker 2 6:26

Yeah , withholding can be difficult , especially if you're in a job that has variable income , right . But but yeah , it's . It's actually probably better to owe them ,

Fatherhood Advice for New Dad

Speaker 2 6:35

yeah , at the end of the year , but a lot of people don't like that , right . But if you have enough in savings and you've yeah , have reserves for such things , it's really not that big a deal .

Speaker 1 6:42

I understand the stress factor aspect of that , but getting a couple thousand dollars back from the government it's not good . You could have been using that income throughout the year , you know .

Speaker 2 6:51

Right , well , a couple thousand dollars seems like okay what I see sometimes people getting like $20,000 refunds and I go okay , we need to fix this , and they go oh no , no , no , this is how we like it . Yeah , and I'm like then , then you need to have discipline in another way Right , exactly , all right , let's talk about housing .

Speaker 1 7:13

Yeah , so buying is always better than renting , yeah , what I think a lot of people you know maybe this is just younger people , but they don't have a lot of life experience myself included on that Right , I think a lot of people in my demographic are very fixated on like I need to buy a home . I need to buy a home because it's almost for a lot of us like this , not unattainable , but it's like it's tough to get to that point and I think that because of that there's sort of like a mystique around it .

Speaker 1 7:39

Like this will fix all my problems .

Speaker 2 7:41

Right .

Speaker 1 7:41

When in reality that's not necessarily going to . It's not going to save you money . Maybe it will in some ways , but in other ways you're going to be . You know , if the HVAC craps out , then that's on you you know Right . Um , so I think that people don't always think about those things .

Speaker 2 7:58

I think you definitely have to add up the true cost of ownership If you can get a realtor to tell you that when you're looking , or maybe going back to your dad for advice and say hey , what's , what's the real cost of owning a house ? And you compare that to your rent and then you might say , uh , you know , probably in this scheme of things it all shakes out to be about equal . I don't know what it does . I think owning a home Would be , would be cheaper Because you are building equity , absolutely .

Speaker 2 8:27

The value of the home goes up . Um , but I'm a little biased there . I mean I never had to rent an apartment . I , I , I , my first place I lived outside of my own house growing up was was a townhome that I had purchased . But I purchased that townhome for I think it was around a hundred thousand dollars in near downtown Marietta , where you guys would have to spend $700,000 now you guys would have to spend $700,000 now .

Speaker 2 8:55

So it's a different world . Or , honestly , I've heard of some of my older son . He's a freshman in college . He has friends just ahead of him that have graduated college . They're buying homes in Cartersville Because you can join the Collegeville Country Club for $2,000 . It's a great course . They have a superintendent out there . Uh , they call them the uh , uh . What was it ? The uh the sod master , or the sod the sod chief or something like that . I don't know , but the grass is always perfect .

Speaker 1 9:25

It's a great great little track .

Speaker 2 9:26

Uh , and he can .

Speaker 3 9:27

He could buy a house for under $400,000 and a decent home , a starter home , new , new construction .

Speaker 2 9:33

So so you know there there's some of that , but when he drives to work , he has to go an hour each way , right , so that that again kind of speaks to the whole thing .

Speaker 1 9:42

It's like it's a lifestyle choice right now . Um , you know , buying , at least directly compared , like same house it is , you're actually paying a premium to buy right now just because of the way interest rates and pricing is here in Atlanta . Yeah , but yeah , I mean , obviously I think buying is should be the objective for everybody If , if you're going to be in the same place for you know a long enough period of time , but you know , if you're , maybe you you're young and you don't have a lot tying you down , you're able to move around and renting is obviously better in that situation too . Yep , you know , you don't have to pay for the plumbing and you know the every little thing that comes up , the bugs , all that stuff . So there's definitely advantages to both .

Speaker 2 10:22

It just depends on your lifestyle , I would say so lifestyle , but also where , where , where is it you want to be ? Um ,

Housing: Buying vs Renting Truth

Speaker 2 10:30

and I remember home prices can go down Exactly .

Speaker 1 10:33

So if you we're going to talk about that later , If you think you're going to work somewhere and you're , but then you want to transfer out .

Speaker 2 10:40

Or you work for a big company and there's better career opportunities . Maybe it's better to rent , because you're going to be here for six months to a year . You're going to be in Denver for two years and you're going to be in LA and then you'll be back here , and then you know when you decide to stop chasing the career . Maybe that's when you buy .

Speaker 1 10:56

Right , so every family is different . Yeah , don't have house envy .

Speaker 4 11:00

Exactly that's what I was trying to convey Before we get back into the episode . Have you ever wondered why annuities keep coming up as a recommended investment , while they're often pitched as a way to reduce risk and secure your future ? Annuities frequently benefit the salesperson more than the investor . Download our free guide . Buyer , beware , why Do they Keep Trying to Sell you that Annuity at wiserinvestorcom ? Forward slash guides . Now let's get back to the episode . Let's get back to the episode .

Speaker 1 11:40

Real estate is a guaranteed investment and maybe guaranteed isn't the exact word that people use , but people do think of it . Like , if I have a home that I want to rent maybe it's a , you know you want to do a rental or a short-term rental People just assume I'm going to have a tenant in there , or that the roof doesn't need to be repaired or you know those sorts of things . Um , even at even in in uh , in terms of , like , buying a home and living in the home , you're just assuming the price is going to go up , right ? Um , so that's why , if you are going to buy a home and you're going to live in it , it is good to know that you're going to be there for a while because of if the market crashes , then you're going to be there long enough to recuperate the value . Hopefully , yeah .

Speaker 2 12:23

I see your primary home is never an investment , right ? I mean , if you , if you add it onto the house , if you , if you painted your home inside or out , or you , are you doing what you want to do ? Are you doing what you think the market wants you to do , right , yeah , and a lot of times what people like is different than what the market likes , that's true . So we count it toward person's net worth . But unless the house is just , you know , you spend $5 million on it , then I'd say that's probably a little different . But for most normal homes I'd say this is just where I live , this is where I like to live , I've made it the way I like it , but I'm not trying to flip it or you know where . If you bought a second home , I would say , yeah , that's totally yeah .

Speaker 2 13:04

For most people that's totally an investment idea .

Speaker 1 13:07

And we have to make sure that we're doing the right thing a rental home are going to be a lot different than something you're going to do for yourself , because you're probably you know it's going to get a little more wear and tear and you're not using it , so you don't need all those . You know custom things that you might do for yourself , or even a vacation home you .

Speaker 2 13:25

you maybe really like this one area , but , um , maybe airbnbs aren't allowed there , or so you would pick a different spot . That's good for Airbnbs if you want to use it too . Yeah , chances are . If the general public wants to be there to vacation , you probably do too , right ? But the point of it is , you think a little differently about it . You're buying it with a spreadsheet , not with your heart . Yeah .

Speaker 1 13:50

Yeah , that's a good point . Another thing that I've heard before is I don't make enough to invest , and I think you know we've probably talked about this on the podcast before honestly but this is something that people have in their head . Everybody's different , but they have this idea that they have to be making this amount of money before they can invest , or you know , they have to have this dollar amount to invest , um , and you know that's not really the case . Um , you can , you know , open up a brokerage account or a Roth IRA or something like that , or , obviously , if you have access to an employer plan like a 401k , small dollar amounts

Real Estate as Investment Myths

Speaker 1 14:25

add up over time and I think the most important thing for people to to think about is that they are saving somewhere .

Speaker 2 14:32

Um even if it is start the habit exactly .

Speaker 1 14:34

You need to start the habit and I like . I also like thinking about things in percentages . Um , you know , think of things in terms of what percentage of my gross income am I saving ? You know ?

Speaker 2 14:45

right .

Speaker 1 14:45

Not just dollar values . Um , and I think that you know , if you , if you build the habit of saving 20 , you know 10 , 20% of your income , then that's going to really compound in the future as you start building your income and progress in your job and stuff like that .

Speaker 2 15:03

Absolutely , absolutely .

Speaker 1 15:05

We have estate planning .

Speaker 2 15:08

Estate planning is only for the rich or elderly elderly State playing is for anybody that doesn't want their assets to get through or doesn't want a probate judge to decide what to do with their assets once they're gone .

Speaker 1 15:21

Yeah , yeah .

Speaker 2 15:23

So kids especially . Yes , you have a new baby . You should have a will power attorney , medical director . Do you have those ? We're getting those set up , so that's something we were talking about .

Speaker 1 15:32

We're having those hard conversations of like okay , if we passed away what would happen ?

Speaker 2 15:37

Who's the guardian ? Those are tough yeah . So , you always got that crazy uncle .

Speaker 1 15:41

You're going to keep him away from right , yeah , or put the finances over here , maybe that maybe they're really good , you know , uh , personally , but we don't want them to have the money , right ? So , um , that those discussions are important to have , especially if you do have kids , um , or you know , if you have , you know , uh , any sort of assets that are outside of retirement accounts , those are going to pass through your will , right ?

Speaker 1 16:04

Um or you know , uh , they don't have beneficiary designations on them . So you know you , if you care about where things are going to go , then you need to have those in place , or at least have a basic will done . I mean the power of attorney directive for for when you're alive uh , and if you can't

Investing Misconceptions and Habits

Speaker 1 16:20

handle your own ?

Speaker 2 16:20

affairs but , you know you're about to have a baby , something bad happened and you need to make decisions for your wife . It's not always defaulted to you . It should be right . Probably won't have any problems , honestly Right . But you should have a document created for that . Usually , the hospitals require it . They even have free forms , I think . If you just totally goof it up they can sign here .

Speaker 2 16:39

Yeah , Um , but yeah , that's , that's a , that's a great one . You know , I think another one I add to this list is um , I think another one I add to this list is politics . So people always assume that their party is better for the markets . Democrats assume that the markets are going to be better because they're in charge . That either party is really bad at the economy , the opposite party that you want Data doesn't support any of that .

Speaker 2 17:07

Data says you stay invested , and investing is actually separate from politics . Politics do intersect into invest into the markets at times , like the tariff sell off which is not fully recovered . Right that that's an example of a political move , that that disrupted the markets , because markets isn't like uncertainty . Right , right , how we're handling covid . That had some , some positive , negative effects , uh , to to the to the markets at that time , but in the end , um and , on a micro level too , making decisions based off of that oh , yeah , like a hunch is really

Speaker 1 17:41

yeah , can be really detrimental as well . So there's the macro aspect , like you're talking about , for the entire economy , but then you know you trying to make decisions based off of your political beliefs . That's probably I just .

Speaker 2 17:52

I just posted this great image to uh on X . You can uh find me at bullish pilot uh B U L L . The I is a one SH pilot Uh , but it shows At a university in Michigan . It shows this year's inflation expectations , based on your political beliefs . So Democrats are expecting 9.3% Inflation this year , republicans are expecting 1.3% , independents are expecting 7.3% and so far this year we're at 2.3% . Everybody All the non-political analysts expect inflation to be below 3% . So it just goes to show you that Democrats are just like . This is a horrible economy .

Speaker 1 18:36

And Republicans were saying that for the last three years . And Republicans were saying that for the last three years .

Speaker 2 18:41

Well , actually we did really have really bad inflation .

Speaker 2 18:43

And we did , but yeah 2022 , 21 and 22 were bad . Bad inflation . 23 kind of flattened out again . Yeah , but , but , yes , uh , so it flips . It flips his head when your party's not in charge . You have these biases that are built in , which we just did a whole podcast series on biases , um , but , but yeah , that would be a myth . Uh , also other the , the other things like people . People think oh , I , as long as I can live on 65 or 75% of my income in retirement , I'm good .

Speaker 2 19:17

Yeah , and those are arbitrary numbers Like where does that come from ? Right it came from like a money magazine , from like the eighties or something , yeah , and it really has nothing to do with that , because your income may have supported you with all these debt payments , but once you get to retirement you should be debt free . Once you're debt free , you could actually live on a lot less with the same lifestyle or better , right . So I find that's a myth .

Speaker 1 19:38

I'm trying to think Right , like if you're saving a lot too , then that comes into play . Whereas if you're not saving a lot , then maybe you are going to spend pretty much the same in retirement .

Speaker 2 19:48

Right .

Speaker 1 19:49

So totally dependent on what you're doing before and after .

Speaker 2 19:52

The 4% rule is another myth that pops up . The 4% rule , I think is fairly legit actually , but used in isolation . But yes , used in isolation . People apply it wrong . It's really 4% and then every year you increase the 4% by the CPI , so the consumer price index , the rate of inflation , is how you do that and no one really knows how to apply that .

Speaker 1 20:14

Like how do you .

Speaker 2 20:14

You

Politics and Financial Planning Myths

Speaker 2 20:15

put that in the Excel spreadsheet is the best way you could do it . Most people are just doing back of the napkin math . They can retire on this 4% rule , and that's not how you should look at it .

Speaker 3 20:23

We don't even look at it that way .

Speaker 2 20:24

We we typically look look at the Monte Carlo . So we're looking at a thousand different possibilities of how people can .

Speaker 1 20:32

Right , and we're looking at expenses and then inflating those based on what type of spending . They are Correct , yeah .

Speaker 2 20:39

Yeah , healthcare . Healthcare is going up by 5% per year . That's what we assume , right ? And so the , the , the living expense . Hopefully it's going to be around two and a half because the fed is trying to target too Right . And you might have other things that would go up more , but but yeah , you just . I think the 4% thing is applied wrong typically and also a bit a bit of a myth .

Speaker 1 21:03

Yeah , just it's lacking context for sure , like a bit of a myth . Yeah , uh , just it's lacking context for sure Like there's just a lot of other things that are that come into play other than that one number .

Speaker 2 21:11

And then another . I think the biggest myth of all is how we feel .

Speaker 1 21:16

Hmm , can you explain that a little more ?

Speaker 2 21:20

Well , just like so many people , so many people come by and they're just like I . I sense that there's a stock market crash coming . I sense it . There's no data , yeah , supporting it . There's no economic data . Like like people right now feel this is the worst economy ever , this is really bad , things are going to fall apart , and there's no data that shows that right now , right , and so they just I just sense things aren't really good . Well , it's because you got a guy in office who does not look like anybody else in the past and he does some crazy things Right , and so you feel uneasy , and that's understandable .

Speaker 2 21:56

I'm going to be empathetic toward that , right . But that's not the reality . For the economy in itself , it doesn't matter who's in power . Delta is going to sell seats , coke's going to sell cola Right , right . So the question is are people still buying ? Seats on the airplane Are people still drinking ?

Speaker 2 22:16

Coke and the answer is , more than ever , yeah , right . So you know , we had a dial back . We had a dial back a little bit scared because of the tariffs , and that was just uneasiness . But you're , you're starting to see things kind of return to normal and you're starting to understand that maybe there is a path over the next four years that we can get a balanced budget and things of that nature . Right , but , um , but yeah , the whole is just how you feel about something , how you feel is influenced by where you get your media , and a lot of the media just isn't right .

Speaker 1 22:45

Yeah , yeah yeah , we talked about that recently cause there's a lot of negativity in that as well . So if you're consuming that all the time , then it's just going to make you stressed out and and it'll have you know , you'll have that bent and how you feel about things . Yeah , yeah .

Speaker 2 23:00

All right . Well , that was a good that's good quick conversation about some of the things that I think people get myth about . You know what we used to do for once a year for financial education . I think that's actually in February , financial planning month , or something like that , I think so , but we would go through all of these acronyms and terms and explain them . We probably should bring that back someday .

Speaker 1 23:21

Yeah , that's a good idea .

Speaker 2 23:28

That's an old episode that we probably could link in here somewhere , but uh , uh , just understanding what different terms are like APY versus APR and all that somewhere . That's how we can find that in our in our history there .

Speaker 2 23:35

Uh , I think we're taking notes . Uh , all right . So thank you , william . Um , looking forward to meeting your baby girl soon . Uh , if you want to learn more about Wiser Wealth Management , you want to come work here with Michaela or with Shauna or myself , william and Grace , we have a great planning team you can go . You do so by clicking in our show notes or going to wiserinvestorcom . We'd love to chat with you . Talk to you soon , see you next week .

Episode Wrap-Up

Speaker 3 24:18

Thanks for listening to a Wiser Retirement Podcast . We hope you enjoyed today's episode . See you next week . This podcast is strictly for informational purposes only and is not to be considered as investment advice or a solicitation to buy or sell any financial products , securities , digital assets or any other investment vehicles , or a basis to make any financial decisions . Wiser Wealth Management Incorporated is a registered investor advisor with the SEC . The host and or guests may personally own securities , digital assets or other investment vehicles mentioned on this podcast . Neither the host nor guests of the show are compensated for their participation and no referral fees are paid to or received by any host or guest for clients , listeners or similar interests . Investments involve risk and , unless otherwise stated or not guaranteed , be sure to first consult with a qualified financial advisor , tax professional , insurance professional and or legal professional before implementing any strategy discussed herein . Past performance is not indicative of future performance .