The Luxe Strategist offers six secrets to splurging on nice things while still saving 50% of your income. Joe and Big Al cover the latest on Trump tax reform, the retirement crisis, 7 Retirement Catch Up Strategies for Lifelong Procrastinators, and why caller Maria maybe shouldn’t trade options. Plus, the fellas confess to their worst impulse purchases.
- (00:47) Budget & Tax Reform
- (10:20) Luxe: 6 Secrets to Splurging on Luxury While Saving
- (21:14) Luxe: Travel Hacking
- (27:26) Joe and Al’s Worst Impulse Purchases
- (36:52) 7 Retirement Catch Up Strategies for Lifelong Procrastinators
- (48:14) Listener Call: Marie on Trading Options
“I’m a big proponent of buying fewer but better things. So I might have a t-shirt that cost $60, but it’s just the one t-shirt, instead of six $10 t-shirts.”- Luxe, TheLuxeStrategist.com
That’s the Luxe Strategist – today on Your Money Your Wealth, she offers six secrets to splurging on nice things – while still saving up to 50% of your income. Joe and Big Al cover the latest on Trump tax reform, the retirement crisis, 7 Retirement Catch Up Strategies for Lifelong Procrastinators, and why caller Marie maybe shouldn’t trade options. Plus, the fellas confess to their worst impulse purchases. Now, with a tiny ukulele and a really big bag, here are Big Al Clopine, CPA and Joe Anderson, CFP.
:47 – Budget & Tax Reform
JA: Talking taxes, investments, retirement and all sorts of good stuff today. We’ve got tax reform may be coming down the pike, and what, we had the budget passed through this week.
AC: Well we did Joe, and just as a little reminder, what the budget does is, it allows a tax bill to be enacted that would potentially increase the federal deficit by up to $1.5 trillion over the next 10 years. In other words, this tax plan, or this tax framework, that was revealed about a month ago…
JA: Your phone’s ringing.
AC: Yeah I know, it’s a caller. (laughs) I’ll get to it later. Anyway. The budget has to be passed that allows for a tax cut, which allows us to go into more debt. Now, of course, the Republicans are saying, “yeah, but this is going to spur the economy.” We’re going to have actually more taxes, and maybe that’s true, maybe not, depends on who you believe, what economists you listen to. But that’s what the Republicans are saying. “We want to lower taxes so that we can increase the economy…”
JA: “…to increase revenues to tax more.”
AC: “…which will ultimately increase revenues more.” I can tell you, being a tax guy, this is complicated stuff. So I don’t know how you just come up with something totally different in a few weeks here, but we’ll see.
JA: We talked last week about 401(k) plans and retirement accounts, and that they increased the overall contribution limits to 401(k)s and defined contribution plans to $18,500.
AC: Yeah they increased 500 bucks.
JA: And there was also talk, within this new tax plan, is that they would reduce the tax deductibility up to $2,400. But what, your boy, President Trump…
AC: My boy? (laughs)
JA: …said, or he tweeted, or whatever he did, said no, that we’re not going to mess with the retirement plans. But then the House said Well I think it’s still on the table.
AC: Yeah, that was like a day or two later. So who knows. There’s a lot of kind of jockeying around, because if you’re going to come up with a tax cut when we’re already in a deficit situation… I guess to explain things even further – because I got this wrong a few years ago with an economist – is, there’s our national debt. So that’s the accumulation of deficits plus interest, and that’s over $20 trillion right now. Then there’s the deficit, that’s the annual amount that we’re spending, more than the revenue coming in. So we’re basically adding to the national debt each and every year, by the deficit. So one of the things that numerous Republicans want to have happen, is to balance the budget, to at least stop making this worse, and then start working on ways to attack the debt.
JA: But the deficit has decreased. It was like a trillion dollars a year.
AC: It has. And if you think about it, it’s logical that it has decreased, because we were in the Great Recession. That’s the worst economy since the Great Depression. And when it’s a terrible economy, people are making less money, so there’s less tax revenue, and you can’t all of a sudden say, “well, Social Security recipients, we don’t we have enough to pay you. So we’ll pay a half this month, and we’ll try to catch up later.” So the government has made these commitments between Social Security and Medicare, and our defense, and all that, welfare, all that sort of thing. Maybe there are ways to cut that, maybe other ways to improve that certainly, but when you make commitments to programs, you can’t all of a sudden say, “No, we’re not doing it.” And that’s how this happens. And so then there’s a general disparity, I would say, between Republicans and Democrats. Democrats would rather raise the taxes, particularly on the wealthy, to try to close this gap. And Republicans want to go the exact opposite direction, because the wealthy are the ones that invest in companies, create more jobs, the economy is more improved. Like I say, it depends on who you listen to, as to which is a better approach, and I’m not going to even try to judge that.
JA: Yes. Stay tuned. We are on the pulse of this. (laughs)
AC: And I guess if you haven’t heard, this tax framework that was announced about a month ago, it takes seven brackets down to three brackets. And the highest bracket is reduced from 39.6 to 35.
JA: But now there’s talk that they’re going to bring it back to a fourth one.
AC: There is yes, and there are changes in deductions too, like your state and local taxes, property taxes, those would not be allowed under this framework. Your miscellaneous itemized deductions, your medical deductions would not be allowed. In exchange, you have slightly lower tax rates, higher exemptions…
JA: No exemptions.
AC: I’m sorry, higher standard deduction.
JA: Are you a tax guy? Or what the hell are you? (laughs)
AC: Not right now. Apparently not. (laughs) Anyway. Also, they’re talking about reducing corporate taxes, even for S-corporations and LLCs. So we’ll have to see how all of that plays out.
JA: Yeah. On the individual side, we’ve done several shows on this, where we kind of break it down, and it’s not really going to affect a ton on the individual side, just because it’s all smoke and mirrors in my opinion. We’re going to reduce some of the taxes, but then we’re going to get rid of some of the deductions. And then get rid of your exemptions.
AC: People end up paying more taxes. So how’s that a tax cut?
JA: Right. So right in the middle too, where you get that 25, 28% tax bracket. OK, well now you’re going to go to 25. So you think you’re going to have a lower rate. But then all of a sudden you have a few kids, you don’t have any exemptions. And then if you live in the state of California, or New York, or any other high-income state, then you can’t write off your state taxes. You can’t write off your medical expenses, and then, “well wait a minute, at the end of the day here, my tax rates went up.” But that’s middle America. That’s who everyone says, “OK well we want to reduce the taxes, we want to help.” So you’ve got to be careful. I guess the point of the discussion is, and Al, you’ve been in the tax world for 30 plus years.
AC: I lose track after 30.
JA: Exactly. And I’ve been doing this a few days, and it’s like OK well, you hear all of this and it sounds really good until you get into the details. And there are zero details on this new tax plan. it’s like, “oh, this is going to be the biggest strongest tax plan ever.” It’s four pages long.
AC: I got it here, it’s nine pages, and the first three pages are an introduction.
JA: And then a nice cover page.
AC: So there are six pages. I like the artwork, it’s cool. But starting on page three is where we get into the meat, and it’s fairly large type. Page 4, page 5, there’s more blank space than there is writing. Not much there. It just says “we want to do this.” So it’s a framework, it’s not really a plan, a bill that we can vote on.
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10:20 – Luxe: 6 Secrets to Splurging on Luxury While Saving
JA: (laughs) Look at that grin on your face, Clopine!
AC: I’m excited about this guest. Because we’ve just learned that she knows, like, way more than we do, which is true of all of our guests.
JA: It’s a unique guest we have. I’m very excited. It’s like Prince or Madonna.
AC: So she goes by Luxe. Which, I guess she wants to keep her name anonymous. I don’t blame her. Because. you know.
JA: Well you’re Big Al. Your real name is Henry. (laughs) I let it out of the bag.
AC: (laughs) Really, you had to say that?
JA: Let’s get to it, we have Luxe on the line. Luxe, hey, welcome to the show. How are you doing my friend?
Luxe: Hey guys, I’m doing great, thank you so much for inviting me onto the show.
JA: Yes. Well, you gotta explain to our listeners, the genesis of your blog. It’s fantastic. I absolutely love it. But you could probably do a lot better job of explaining the genesis behind it than I can.
Luxe: OK, so the short answer is The Luxe Strategist is basically a personal finance website for people who like nice things.
JA: I love nice things.
AC: Okay, you’ve got our attention.
Luxe: So that’s the little timeline. But you know, really what I wanted to do, was kind of challenge the idea of, like, what being good with money means, what frugality means. Because I’m somebody who, you know, have a really strong interest in personal finance. I’m good at saving money, but also spend money on things like designer clothes and travel. And so usually when people think about those two things, they think they’re an oxymoron, and that they don’t really go together. So my talent, my goal, is basically just challenging the idea that, you can be good with money but you can also spend money, as long as you do it consciously and on the things that you value.
JA: OK so looking at your bio, you’re a thirty-something New Yorker. You save 50% of your income. But you travel to Paris and Hawaii for practically free, and then you like $400 sneakers? I like that. Well, I like nice shoes too. I like watches. I like nice clothes…
AC: You just have to travel.
JA: Yeah. I live in San Diego, where else would you wanna go? So how do we do this? Because I think a lot of times, you know, everyone likes nice things. But then there’s some guilt around it too when you buy nice things, it’s like, “Maybe I should have been saving,” and this and that. How do you go around being able to save as much as you save, and still be able to kind of buy the luxury items that you do?
Luxe: Yeah, I think that’s a really great question because I think people tend to look at a price and they see sticker shock. And then they just kind of judge, like, “OK, that’s $1,000. I can’t afford it.” But they don’t really kind of think about it in terms of value. So one of the ways that I’m able to do these things is just being creative, and thinking outside of the box, in terms of what can I drastically reduce in my budget in order to afford all of these things that I love. So for example, I live in New York. Everybody knows that rent is super expensive. They say it costs $4,000 to rent a studio, but who says that you have to actually live in the $4,000 studio? For me, like, I’ve never really prioritized spending a lot on rent. So I’ve always lived with roommates. Right there you’ll save $600, $1,000 a month. So you have to think about, people talk about cutting little things like lattes every day. But what about the big expenses? And things like, when you live in a big city, we don’t really have a lot of those really big transportation costs that other people do. So that’s definitely one of the ways.
JA: How do you budget? Is there tools that you use to take a look at, “here’s the income coming in, here are the expenses that I have.” How do you go about prioritizing things that you can cut, and then that you want to spend money on?
Luxe: Yes. So every time I’d get a new job or I’d get a little raise, I would fire up an Excel spreadsheet, put in all of my categories. The first thing I figure out is how much I want to save. That’s always number one. And then like the second tier would be putting in my fixed expenses, and then the third tier would actually be my discretionary spending. So that’s what I would do first, is always prioritize how much I save, and I would automate it. And then, I also use Mint.com to put in my budget and track my daily spending.
JA: How often do you track that? Because I use Mint, and sometimes it’s a disaster.
AC: Have you ever tracked it? (laughs)
JA: Yeah, I have my I have my financial summit, Al.
AC: (laughs) You’ve never talked about it.
JA: Yeah, I crack open a bottle of Fireball, and drink that thing down and look how much money I spent. (laughs)
AC: (laughs) “Looks pretty good, must’ve had a good year.”
JA: (laughs) Yep, looks pretty good, when I’m done with that bottle, it’s like, I feel really great. But it gets cumbersome sometimes, and then you have to look at it, probably a lot more than I do. Because I might do it maybe semiannually. And then I’d just like, “man I can’t be spending that,” and then six months go by and then it’s like “dammit!”
Luxe: Yeah. Well you know, I think six months is probably a little too infrequent. But honestly, I don’t think about my money that much at all, because I have a system. So I probably look at, of course, it’s always fun to look at Mint.com when you get paid, and you kind of see your net worth go up temporarily until your credit cards get used. But yeah, I probably look at it about, maybe once a week, but to be honest, my spending is pretty much in check, because I’m extremely selective about what I buy. And that’s kind of like, I guess, part two to your initial question was how you actually do this in such a large city, is that like you have to be really choosy about what you spend your money on. So for me, it’s like, the top three categories are clothes and travel. But I also find ways to drastically reduce those costs. So if there’s a jacket that you want that cost $600, you maybe wait a couple of seasons, you can probably find that on the second-hand market for maybe like $150.
JA: So patience is key.
Luxe: Yeah, patience is really key.
JA: I do not have patience, Luxe.
AC: That’s the problem. That’s what we’ve got to work on.
JA: Impulse buying.
Luxe: A lot of people are like that.
AC: Luxe, it sounds like you’ve got a really good system, and so you don’t necessarily have to watch it every day, because you’ve got the system set up, and the already can have employed it day to day. Let me ask you, you said you save automatically. How and where are you saving?
Luxe: So I get paid twice a month, and then I max out my 401(k). So that gets taken pretax so I never see that in my paycheck. And then I also max out my health savings account. So basically, my paycheck is drastically reduced. And then, once I get my actual net pay, I’ll have a certain amount moved over to my savings account every single month.
AC: Is that automatic too, or you or you do it yourself?
Luxe: No. It’s automatic.
AC: Very good. Yeah, that’s the key.
Luxe: I used to have a Roth IRA. So I would save automatically every month for that too, and just contribute every month.
AC: Yeah, you kind of go on autopilot, then you don’t even have to think about it.
JA Yeah, she’s got it down, Big Al. It’s pay yourself first. It’s like, let’s max out the 401(k), outta sight outta mind. Max out the Roth IRA, outta sight outta mind. And then you take a little bit of whatever that’s left, you put it in your certain living expenses, and then whatever’s left, boom, I’m goin’ to Paris!
AC: And so then you’re intentional on your discretionary income, instead of just spending it and then it’s gone. I like that.
Luxe: Yeah definitely. I looked at my shopping budget, I was like actually looking at my Mint category earlier, and I saw that I didn’t shop for three months. But that’s like my natural behavior. I don’t have to do things like, “oh, I have to go on a monthly shopping ban, XYZ.” When I see something, I very rarely buy it on the spot. I’ll think about it and have a process. Like I just wrote a post about my thought process for buying a t-shirt that happened to cost $60. And it got shared on Facebook, and there are a couple of judgmental comments, (laughs) which is par for the course. But I think that maybe some people missed in the post, was that I think. It’s like a 12 step process for how I actually decide. it doesn’t matter that it’s a $60 T-shirt. The fact that I think so deeply about it before I actually buy it.
AC: You think about the pleasure and the value it gives you. So that’s making it intentional, it sounds like.
Luxe: Yeah, and I think the other part of it is, I am a big proponent of buying fewer but better things. So I might have a T-shirt that cost $60, but it’s just the one T-shirt, instead of six $10 t-shirts.
JA: So how often do you wear that t-shirt, Luxe? I would wear it every day.
Luxe: Well, I just bought it. And it’s actually cold out here, so I haven’t worn it yet, but it will be prime to come out come spring. But yeah, I don’t have very many clothes. I think it’s kind of like the same sets of clothes rotating out every week or two. But yeah, I have clothes that are maybe 7 or 8 years old. I have a pair of jeans that cost $140, and they’re 8 years old, and I still wear them all the time. So I think for me, it’s about understanding the value of what you’re getting. And really using it, because if you buy something that’s really cheap, and you don’t use it, that’s basically a waste.
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21:14 – Luxe: Travel Hacking
JA: Welcome back to the show, the show is called Your Money, Your Wealth. Joe Anderson here, I’m a Certified Financial Planner with Big Al Clopine. We have a kind of interesting guest today. Her name is Luxe. Let me ask you this, Luxe. What is the worst money decision, what is the worst thing that you’ve ever bought, that you were like, “I just spent a lot of money on this, and I probably shouldn’t have”? Or, that’s never happened to you, because I’ll share you mine.
Luxe: Oh yes, because I’m perfect! (laughs)
JA: You sound perfect, Luxe.
Luxe: Yeah, I actually I wrote a post about a couple of things that I bought that were fails, and I bought a lamp from West Elm that cost $160. And it’s hanging out in my living room right now, and I kind of get like a little pang of regret every time I walk by it. (laughs)
JA: Well let me tell you mine. I bought a replica Darth Vader mask, that I think Darth Vader wore himself, for like $700. (laughs) It is sitting in my living room, and I look at it every day, and I am saying, “I am such an idiot.” (laughs)
AC: But you love it. (laughs)
JA: Oh yes Saturday nights, I put that thing on. See, I need to not be an impulse buyer, Luxe, this is helping me out. I need to get on your process.
Luxe: Well you could think about that purchase as an investment, and maybe it’ll be worth something one day.
JA: I doubt it. (laughs)
AC: He’s worn it out. (laughs)
JA: Yes it’s all cracked up. It looks like the mask after he got blown up. (laughs)
AC: It’s worth 10% of the original value. (laughs) Well, because we know Joe is an impulse buyer, how can we help him with travel? What are your tips on traveling for cheap or even free?
Luxe: Okay, so have you ever heard of this thing called travel hacking?
JA: Travel Hacking. No, never heard of it.
Luxe: Travel hacking, or signing up for credit card sign-ups. So you know the idea of frequent flyer miles. So basically if I fly from New York to L.A. I’ll get like 3,000 points, which is not really much. But credit cards have these bonus programs, where you sign up and you spend a certain amount, you can get 30,000 points, 40,000 points, up to 100,000 points. So basically, signing up for these credit card bonuses is like a shortcut to amassing all of these points, and then you can redeem them for travel.
JA: So do you just churn and burn credit cards, is that how you do it? I’m not a total churner and burner. What I try to do is I sign up for the card just kind of like based off of my natural spending. So for example, there are lots of cards where the requirements would be you have to spend $3,000 within three months in order to get the 40,000 bonus points. And that’s enough for like a cross-country flight. Many people will be able to spend $1,000 a month like on groceries, on their kids, etc. And one smart thing that I did was I got married earlier this year. I thought, “great, this is an awesome opportunity for me to sign up for a credit card that has a really high spending requirement, that I normally couldn’t meet, but I can use it for my wedding costs because I’m going to spend my money on that anyway.” And so, that was a really good opportunity for me. Perfect timing, taking advantage of that.
AC: Is that how you went to Paris, on that?
Luxe: No that’s not. I haven’t even used up those points. I’ve been to London, Paris, and Hawaii. And then, this December we’re going to go to New Zealand. That one was a really difficult one. It requires some planning and everything to kind of make sure that you can find a seat. But there’s this whole subculture about travel hacking. I’m not sure if you’ve heard of this guy called The Points Guy, but he’s basically like one of the pioneers of travel hacking, and he has every single resource that you could even think of about it.
AC: One of our clients does this, but she’s always been secretive on how she does it, so we’ve never known. (laughs)
JA: Yes. The Points Guy. (laughs)
AC: Now we know. Yes.
Luxe: She’s the point gal. (laughs)
JA: This is what I’m gaining from this, Luxe, is that I cannot impulse-buy stupid things anymore. Now I have to get married, and I have to put in all my credit… This is just – this is awful. (laughs)
AC: Yeah but you could turn your life around.
Luxe: Another thing that I did was, my friend was moving to New York and he was working in investment banking. I thought, “okay, he’s going to need some new furniture. So I thought, “I’ll give you my credit card to use to buy furniture, then you can give me a check later.” So that was another thing that you can do too if you have some rich friends.
JA: Luxe, I gotcha. Where can people find your blog?
Luxe: They can find me at TheLuxeStrategist.com.
JA: TheLuxeStrategist.com. That’s Luxe, folks. Hey, thanks so much for joining us. There was a lot of fun.
Luxe: Thank you guys, it was super fun.
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27:26 – Joe and Al’s Worst Impulse Purchases
JA: Hey, welcome back to the show, the show’s called Your Money, Your Wealth. Joe Anderson here, Certified Financial Planner, with Big Al Clopine, he’s a CPA. Thanks a lot for tuning in. Well, we had Luxe. That was interesting.
AC: Yeah we did because we learned how to be intentional about those luxury items that you like. And you don’t feel guilty because you plan for it, and you think about it, and you think, spending this money, am I going to really use it, or get the enjoyment, or is the value there? Yeah, I like that, because I think most of us, we take our discretionary income and we don’t think about it and it’s gone. We can’t even remember what we spend it on.
JA: There’s a lot of good nuggets out of there. You just have to find them. First of all, right. It’s panning for gold. So when you find those nuggets, you can kind of take that and say pay yourself first. And that’s what you do. That’s what I do. This is the dollar figure that I need to save out of my paycheck, and it’s on autopilot, and it’s saved. And then it’s like OK, well everything else, I know that I have my mortgage, I know my property taxes, I know I have this, that, whatever, then there’s another bucket there that it’s just like OK, well I know that my financial goals are going to be met with these savings. My daily, monthly, annual household expenses are going to be covered with this. And then there’s a little bit left over, and if you want to splurge a little bit with that, then, by all means, go for it, because you work hard you still want to have fun and things like that. But just don’t buy stupid Darth Vader masks. (laughs) Here’s my latest stupid thing. Here’s my latest stupid purchase. I just thought of it. So I’ve been playing a lot more golf lately. So I had to, get bigger – I got big hands. So I wanted to get a little bit bigger grip on my clubs. So I don’t know. The grips are eight bucks, no big deal. So when I come back to get my clubs, I’m looking around and I’m looking at golf bags. And then I’m like, yeah, I could use a new bag.
AC: Some of them were pricey.
JA: Guess what I bought. I bought a golf pro, just like a huge golf pro bag. It’s like what Tiger Woods uses. (laughs)
AC: Does it say Anderson on it? (laughs)
JA: Yeah. It’s leather, the thing is giant, It doesn’t even fit the golf cart. It is embarrassing. I’ve used it once it was like, “God this thing is huge!”
AC: You could hardly carry it to the cart, the cart doesn’t even hold it? (laughs)
JA: Yeah, I need a caddy to get it on the cart. (laughs) That’s why they don’t drive golf carts in the pros because the bags are too big.
AC: They don’t fit. They’re not designed for that.
JA: So I put it in the golf cart and my buddy that I’m playing golf with, he’s like, “Anderson, I can’t fit my golf bag in this stupid golf cart because yours takes up the whole thing.” (laughs) So embarrassing.
AC: So you’re going to have to get a solo cart every time every time. (laughs) Or you could walk and carry it yourself.
JA: No. It’s way too heavy. You could put a good, probably, a case of beer in there too.
AC: (laughs) No one would notice.
JA: It’s like Rodney Dangerfield. Remember his bag?
AC: Oh yeah with the radio and everything?
JA: That’s what I bought. So stupid. (laughs) So stupid.
AC: Yeah but here’s what I heard from Luxe. If you buy these impulse purchases on credit cards, then you get points. That’s what you got to do next time. (laughs) No debit card, no check. Let me figure out which card… Oh yeah, this one will give me 30,000 extra bonus points if I charge $1,000.
JA: I put everything on American Express. 100%.
AC: But you don’t get points.
JA: Well yeah, sure I do.
AC: You ever use ’em?
JA: Never. I don’t even know how.
AC: (laughs) Let’s call Luxe back.
JA: I know. I should say, “hey I have these points, I don’t even know how to use ’em.”
AC: I got a million points, what do you do?
JA: It’s a lot of points because I just pay it off at the end of the month, I don’t carry a balance. So, and then that also helps me know that I have a certain amount of my discretionary expenses. I’d put it on that card because I don’t want to carry a credit card balance so I just pay it off every month.
AC: Sure, that makes sense. So gosh, you’re already living the program, you’re just not doing Step 2, which takes advantage of the credits you’re being given. (laughs)
JA: (laughs) Yes, with all the mail I get, I’m just gonna start loading up.
AC: So I did an impulse buy. I guess it was a couple of weekends ago because it was Ryan’s birthday, and he loves guitars, and so we took him to Guitar Center. And he actually already has like four or five guitars, so the main thing he wanted was a stand. So we got him at a stand that holds seven guitars, and a few other things. And I used to have a ukulele.
JA: Oh yeah. You were on a tour, weren’t you?
AC: Also known as ukulele if you’re in Hawaii. And I gave it to Rob, my older son, and now he loves it, and he plays it all the time. So I’m ukulele-less. I don’t have one.
JA: Is that like a baby guitar?
AC: Well sort of, it’s for strings instead of six, but they’re tuned the same way as a guitar.
JA: That’s what Tiny Tim played, right?
AC: Yeah. Tiny Tim played the ukulele.
JA: So Big Al and Tiny Tim in concert. (laughs)
AC: (laughs) Yes that’s that’s right. I’m growing my hair long, just for that reason. So I’m in this Guitar Center. Mind you, this is for Ryan. But I’m looking at ukuleles. (laughs) And I pick one up, and it’s it’s a Fender ukulele. it’s like Fender is electric guitars, and it’s like, wow, that’s kind of cool, it has the same kinda stem. It looks like electric guitar style, except it was a ukulele.
JA: It was a baby guitar.
AC: Yeah and so I was playing it. And I was going, “This is pretty cool. I need to get this.” So I got it. (laughs) Anyway. Two weeks have passed. I have picked it up once, and my fingers are too big for it. (laughs) Hopefully, I can still take it back because this turned out to be not even a regular – this is like a mini ukulele. I need to be 12 to play it. (laughs) So I’ll trade you that for the mask. But with your big fingers, I don’t know what you’d do with it. (laughs)
JA: Oh my God you’ve got to come – Big Al and I are going to have a garage sale and you’re going to see just ridiculous things. (laughs)
AC: What we bought over the years.
JA: What were these people thinking?! We got a Fender ukulele with a Darth Vader mask. And a giant, giant golf bag.
AC: But see mine only cost $199. But then you get the maintenance plan in case you break it. (laughs) And then I got a case (laughs). It’s like, “I’m never going to take it anywhere.” I was thinking, “where am I going to take this?” (laughs)
JA: People are like, “Oh my God, look at Big Al!”
AC: It’s a really cool case if I needed a ukulele. So I think I’m going to try to take that back, (laughs) because there are bigger ones that I can actually play.
JA: Like a normal size. That was a replica. (laughs)
AC: It was like let’s make an electric guitar company. Let’s do ukulele, let’s be really cool. (laughs)
JA: It was a prototype. (laughs)
AC: Yes, right. It’s awesome. I just can’t really play it. (laughs)
JA: I understand. My goodness. Well, see, if you can learn anything from this show, this is it. Don’t do what we do.
AC: Yes, just avoid what we say. Follow Luxe. So yeah, what did she say? The travel hacking and the points guy. Now we know our clients’ secrets. So next time she comes in, “How’s it going with the points guy?” She’ll go, “how do you know?” She’s always been super protective. I don’t think she wants her husband to know, because of her husband, you know, “wow, this is great.” I think that’s why it hasn’t come up. Anyway.
JA: I’ve always wanted to talk to her privately: “So hey, what’s that again?”
AC: No, I’ve tried. She always defers me. “Yeah, we’ll talk about it some time.”
JA: Oh yeah, she’s taking that to the grave. But guess what, we found out.
AC: We got the skinny. Wow.
San Diego, don’t start lining up for that garage sale just yet, Joe and Big Al aren’t quite ready to part with the Darth Vader mask, the giant golf bag and the tiny uke. But come join us for a one-hour lunch n’ learn on Thursday, November 30th. We’ll look back, review the year’s major headlines, and discuss what may be ahead. Learn what the data is telling us about the economy’s health, what financial experts predict for the end of 2017, and which details you should pay attention to. Visit purefinancial.com/marketupdate to register for this free event – lunch is included! Visit purefinancial.com/marketupdate
Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 7 Retirement Catch Up Strategies for Lifelong Procrastinators
AC: I guess I could say you and I are paying ourselves first. But a lot of folks don’t. In fact, maybe a whole lot of folks don’t. A lot of times you wake up and you’re 50 years old, and you haven’t done much. And you’re thinking, “Wow, how am I ever going to retire?” And if you find yourself in that position, these seven strategies might be exactly the thing you need to think about. And the first one is: save first, spend second. That’s just what I said. Pay yourself first. And Joe, we talk about this a lot, but it’s one of the most important things in retirement is save first, save automatically, save into your 401(k), out of sight out of mind. It never enters your checking account, you’re not tempted to spend it because it’s not there. Because what everyone else does is they figure, “well, I’ll just save whatever’s left over,” and somehow nothing’s ever left over. You figure out ways to spend it is the problem.
JA: Everything comes up, you know. But if you don’t have it, you can’t spend it.
AC: Right. You could say, in terms of nutrition, eat vegetables and fruit, lean meats, whole grains. This is one of those. This is like a basic tenet of saving for retirement is paying yourself first.
JA: I was working out with my trainer. And so he’s starting a six-week workout challenge for his club, his gym. And he’s like, “I’m going to do something a little bit different this year, we’re going to do it starting now.” I think it starts maybe next week. And so it ends like right around Christmas time. And I was like, “wow. You’re going to go through Thanksgiving?” He goes, “Yeah, that’s kind of the whole point, is that if you want to get in shape, this is a really difficult time to do it, because there are Thanksgiving and Christmas parties, and holiday parties, and work parties, and everything else in between.” So if they could get on this challenge and be committed to it. It’s six weeks long and I think it cost 600 bucks. But if you lose 10 pounds, or whatever your goal is, so you set a goal for the next six weeks of what you want to do, and then they give you your money back. So it’s just trying to get them committed to lose weight. And he goes, “here’s the funny thing, people go on diets or start a workout program five to six times a year.”
AC: Really. And it doesn’t stick.
JA: And I was like, “Are you kidding?” He’s like, “yeah, that’s what the studies say.” So every other month, someone is going on a diet. And then they’re doing it again. And then they fall off the wagon, then they’re doing it again. Or going to the gym. So it’s the same thing with the whole workout, fitness. It’s like do a couple of burpees and eat a little bit healthier. But it’s a multibillion-dollar industry with videos, and “sprinkle some salt on your Big Mac and you lose weight.”
AC: I remember that years ago on the cable channels.
JA: And then they ended up with a lawsuit because it was fraud. Imagine that. (laughs)
AC: Yeah I was really hoping that one would work. (laughs) Anyway, so talking about getting in shape and eating right, you actually do it – paying yourself first, if you have a 401(k), it’s automatic. You don’t you have to think about it. The second one here Joe is: take advantage of catch-up contributions. And what that means is, if you have a 401(k) or 403(b) and you’re 50 or older, you can put $6,000 more into that thing than everyone else. Or if you have just an IRA or Roth IRA, you can put $1,000 more than everyone else, so the limits right now, 401(k), $18,000. If you’re 50 and older, $24,000. IRA or Roth IRA $5,500. If you’re 50 and older it’s $6,500. So make sure you take advantage of those catch-up provisions because they’re designed just for you, to help you catch up. That’s where they came from.
JA: Key. If you can do it. Absolutely. Here’s another thing to consider or to be aware of: some 401(k) plans. to maximize the catch-up, you’re going to have to let them know. Because if you check the box, you’re putting in X amount of dollars, and then you get to that $18,000 limit, and you’re over 50 and you want to put $24,000? Sometimes you’re going to have to direct the 401(k) provider that you want to put money as a catch-up.
AC: Yeah that’s a really good point. That’s true of our plan, with Paychex. You can max out your regular 401(k), but then there’s a catch-up thing, which is a whole separate election, that you want to make sure you max out that as well. Really good point. Another one is decreasing monthly expenses. We’ve talked about that already on this show. Hard to do. Some people are better at it than others. Some people will budget, some people will track their expenses. In our experience, most people don’t want to do that. So actually, I would say, the rule of thumb for all the rest of us, that don’t want to do this, is to do a little planning to figure out what you need to save. Make sure that that’s being saved automatically. And if you don’t have a 401(k), have it automatically come out of your checkbook. And the same day your payroll comes in, have it go to your IRA, your Roth IRA, your trust account, your savings account, whatever it may be, have that automatic. Figure out what you need to save, so that whatever’s left in your checkbook, then that’s what you can spend for that pay period. That’s a really simple way to do it. And I think it works for virtually everybody.
JA: But you have to get motivated to do this. Unfortunately a lot of times, bad things have to happen for people to realize that they need to change their ways. So some of you have done a phenomenal job-saving. And then you’re even saving a lot more than you probably need to provide yourself with the retirement lifestyle that you’re accustomed to. A lifestyle that you’re accustomed to today. But let’s say I’m a little bit behind, so some of the things that I’ve been trying to do to motivate individuals to say, you’ve got five years to retirement. You don’t have a lot of money saved. And here’s your Social Security benefits, but you make a good income. You just spend a lot. it’s your money, you do whatever you want with it. But you’re making $100,000 now. Your Social Security benefit is going to be $22,000. So can you live off of $22,000? Because that’s what’s coming down the pike. You’re going to have to live o $22,000. So try to do that this year, just live off of $22,000, and then save to everything else. “There’s no way I can do it.” Well, that might be just one bad year. Just one miserable year, that you’ll have to go through. Then you can save that everything else, versus spending the next 20 years just being absolutely miserable. You pick your poison.
AC: And I think the other thing too, Joe, is like let’s say you’re spending the hundred. If you can get it down to where you’re spending 50 or $60,000, and get used to that, and save the difference, then by the time you hit retirement, you may be able to sustain that same level. So that’s really the key – and you have to want it. It’s just like work.
JA: You have to put yourself in a mindset. I think there’s a big brokerage company, what they did is that they had this company take a picture of their clients. And then they aged their face. Like what they looked like in their 80s or something like that? You know what? That motivated people to save money. It was crazy because they saw a future self. And they’re like, “I need to take care of that ugly looking old man. I feel bad for him. He looks sad.” Yeah, because he’s broke! (laughs)
AC: Another one Joe is, downsize or relocate before retirement. And I will tell you this, a lot of people that we talked to want to stay in their home, and I think the majority of baby boomers want to stay in their home. But whether that’s realistic and practical… if you haven’t saved a lot in your retirement, and you happen to have a home in Southern California let’s just say, where there’s been a lot of appreciation, that truly may be your retirement asset, and you can say, “no, I don’t want to leave the home.” OK, well that’s a choice, but that’s going to mean you’re going to have to work a lot longer. And if that’s what you want to do, great. But some people will say, “if I could retire at 65 or 70, instead of working till 80, it’s worth it for me to live a little bit simpler life.” And so that’s a choice you have to make. And I think for a lot of you, if you are behind, that’s a pretty realistic place to go to.
JA: We’re seeing more and more of it, where some people are renting out rooms, or maybe empty nesters.
AC: Yeah. AirBnB is really good for that.
JA: I live by the University of San Diego. And so there’s a lot of neighbors, that are renting out some rooms to USD kids.
AC: That makes sense. The other one is: earn side income. This is a big one I think. I actually think that the new retirement norm is going to be to have some side income.
JA: Yeah, you got your Fender ukulele, you’re gonna go out and play the clubs.
AC: Yes. I’m going to make 20 bucks in tips, except I don’t know. If I can’t put my fingers on those chords, the strings, we’ll have to see. Another one you might want to consider is changing employment. That’s kind of a drastic thing. But if you’re in a situation where you’re not making a lot of money, and let’s say you’re 50, and you’re kind of in a dead-end type job, maybe your industry is starting to decline, you might need to get retrained. But you still got 15-20 good years in you. Maybe it’s worth getting retrained and looking at what other opportunities are available. And then finally, Joe, is creating cash flows, and basically what they’re talking about there is when you have saved some money… And so maybe you kind of woke up in your 40s, 50s, or even late 50s, or even 60. You kind of wake up and you start aggressively saving, and that’s like now when you retire, it’s making the most of the retirement dollars that you have. And it’s considering where those assets are located. If it’s in retirement accounts, you’ve got to pay ordinary income taxes on that. If you got some money in a Roth IRA, you can manage your taxes better, because you pull money out of there and it’s tax-free.
The final strategy for procrastinators is to create cash flow – by paying off debt or refinancing your mortgage, for example. For more, just visit the White Papers section of the Learning Center at YourMoneyYourWealth.com to download our FREE Retirement Readiness Guide. This guide contains little-known secrets about creating income to last a lifetime, making the most of your investing strategy in retirement, controlling your taxes and much more. You’ll learn 7 plays to help you get retirement ready, despite the uncertainties we may face. Download the FREE Retirement Readiness Guide from the White Papers section of the Learning Center at YourMoneyYourWealth.com. Now, If you have a burning money question, just call 888-994-6257 for your chance to talk to Joe and Big Al and have your question answered live during Your Money Your Wealth, Just like Marie did:
48:14 – Listener Call: Marie on Trading Options
JA: Marie, welcome to the show.
Marie: Thank you so much you guys, for picking up my phone call. I have a question here. I am in my 50s, and I want to retire, but I also, want to retire and preserve my capital. I don’t have that much, but I want to invest in options, trade options. What do you think about that? Is that a good way to invest the money to make it work for you? What is the difference between trade options, compared to just leaving it in a mutual fund?
JA: Well let me ask you a few questions. What is your experience with trading options?
Marie: Well, not much but I heard that you can learn about it. You can do the trading on the Internet by yourself.
JA: Sure. So what type of options would you want to trade?
Marie: I would think weekly or monthly, making the investment. Buying and selling, I guess. Of course is that going to have consequences of buying a stock and selling a stock – that’s another thing that is going to throw me off. Am I going to incur expenses in doing that? Or just put the money, say $1,000, right into a mutual fund.
JA: Well let’s talk about it. OK. So you’re in your 50s, you would like to retire at some point. How much money are you thinking about trading options with?
Marie: I don’t know, I’m going to start with very little, $5,000.
JA: OK. And then how much money do you have total, saved on right now for your retirement?
Marie: I have put it in real estate, and my money is practically not with me, being a real estate investor.
JA: OK. And then how much cash flow are you are you generating from your real estate investments?
Marie: Just barely breaking even at this point.
JA: OK. And then what is your long-term plan with the real estate? Are you aggressively paying down the debt, so you can increase your cash flow? Or are you holding the properties more for growth and sell them at some point to get some liquidity?
Marie: Yeah that’s what it is, holding the property more for growth, and hopefully I can sell it when I get older, a lot older. So right now I want to keep it like that.
JA: Well, here’s, I guess, my two cents. Trading options is a very sophisticated way of investing. It is highly speculative, depending on what type of options that you are trying to trade, and what you’re actually trading. If it’s commodities if it’s just the S&P 500, are they individual stocks? Are you doing call options, put options? Are you straddling? So there’s a lot more to it than maybe, “hey you can make a lot of money trading options.” If you’re a novice investor, and it sounds like more or less your on the real estate side of things, versus playing with the stock market. I would say, if you want to spend a few thousand dollars and try to see how you do, Al and I’ve met people that have made significant wealth trading options, but we’ve met more people that have lost a significant part of their wealth trading options. So, playing the Wall Street game that way, I think there’s a lure of making a lot of money, but there’s also a significant risk with that if you don’t necessarily know what you’re doing.
Marie: Yes I hear that. And I talked to one of those brokerages, and they’re willing to teach you how to do it. Of course, I’m an old person now, considering. I definitely don’t want to risk my capital. But again, I want to be able – because I have also a physical condition, so I want to make sure that I can be able to support myself later on.
JA: Yeah. I would probably stay away from it. What do you think, Al?
AC: Yeah I agree, Marie. I’m also a real estate investor, and I think that’s a great way to go. Are your properties in San Diego, or where are you located?
Marie: Yes, I am a real estate investor. When I say that I’m investing the real estate, I own my own home, I bought it many years ago, it has accumulated a little bit of equity in it, and I want to remain like that, in any case someday I sell it, get some equity, buy a new one, cash.
AC: Do you have any rental properties as well?
Marie: No. Not just the home.
AC: Okay. So I’m going to tell you the same thing as Joe. With options, that is a pretty sophisticated way to invest. It’s also – you can make a lot of money, but you can lose a lot of money. In some cases, you can lose more than your principal. And it’s basically a way to take the stock market on steroids, if you will because you can make a lot more, but you could lose a lot more, and I would not go that route. What I would do, is I would have a low cost, inexpensive, globally diversified portfolio, with index type funds. That would be my recommendation for you.
Marie: OK. I understand. I was just very inclined to think that this is a new thing and you can make money real fast.
JA: Yeah, you can make money really fast, but you can also lose money real fast.
AC: I have direct experience with somebody that lost millions doing options, and I would just be careful.
JA: Hey thanks so much for the call. Good luck with everything.
Marie: Thank you so much. Bye.
JA: With the options trading, I think there are safe ways to trade options. Covered calls as a pretty conservative way to invest options. An option, all that is is just, you have an option to either buy or sell a particular security at a given price. And I’m not going to get into the weeds with this, but listening to Marie, is that, maybe I’ll do a couple of thousand, I hear that you can make a lot of money quick, and maybe I’m a little bit behind in my overall retirement savings, I’m in my 50s, I would like to retire ASAP. And it’s finding that quick win, that fast buck, which hurts people – blows people up.
AC: Yeah it does Joe, and I think that’s the tendency is when you wake up in your 50s, and you realize you are behind, then you want to get more aggressive, or you think you need to be more aggressive, and we have found more often than not, some of these, I guess I don’t want to call it a scheme, but some of these strategies that are pretty risky.
JA: Well if you’re naked with your option strategy, yes, you have significant downside risk. But if you have a covered call, it’s not like you’re going to lose everything, you’re just going to lose whatever the price of the option was. Or you’re in the money, outta the money.
AC: But then you have to understand what a covered call is.
JA: Exactly! But they can teach me. It’s like well these traders on Wall Street have been doing this for 20, 30 years and guess what. A lot of them blow themselves up because you get a couple of wins, and then you’re like, “hey, this isn’t that bad. It’s just like the infomercial told me. I could make a lot of money doing this.” And then they lure you into another one – here, now spend $7,000 on this trading system, and then go back again,
AC: And the person making the money is the one selling the courses. The same thing happens with real estate. And I got sucked into that in my 20s. And some of that, I honestly learned from, and others you get overconfident. And I tried it, and I’ve made some money in real estate. But I will tell you, it’s way harder than it’s portrayed.
JA: Sure. What are you talking about, come on! (laughs) Flip it or win it, or…lose it, or…. You got the TV shows, you’ve got the young guys in there, looking good. Oh, well let’s just flip this thing, make a hundred thousand bucks.
AC: A couple of books I read said, “yeah, use other people’s money, and then you have the tenant basically pays the debt off, and you just wait for checks to show up in your mailbox.” That’s what I read a little bit of that. Doesn’t quite work that way.
JA: Some days it does. Some days it doesn’t.
AC: Lots of days it doesn’t. As when I had a tenant that, when I kicked out of the place for nonpayment of rent, they had parked their motorcycle in the living room, on my new carpet. That was when I was a young landlord. I learned a lot from that one.
JA: Oh, I could just see you be the heavy in kicking a Harley guy out. He was in the Hell’s Angels, probably.
AC: No I didn’t. The sheriff did. (laughs)
JA: (laughs) Now the truth comes out. Yeah, Al’s pounding on the door, “Hey, Bruce! Pay the rent or get out!”
AC: That was one of my first – actually maybe it was my first, second landlord experience. First one, dumb luck, I got a good tenant. But the second one was awful, they didn’t pay the rent. I called them up and said, “you got to pay the rent or move out,” and they said, “well you didn’t give me the three-day notice.” I’m thinking, “wow, they know way more than I do.” (laughs) So then I hired an eviction firm for the three-day notice, and then they contested. So we had to go to court, and I just wanted them out. I went to court and they didn’t show up, and the judge said, “what’s the issue.” And I said, “they haven’t paid rent.” And he said, “OK, they’re not here, they’re evicted. Now, what do you want for the judgment?” I’m thinking, “they don’t have any money.” So I was like in my 20s. Totally unprepared. And he goes, “Well the rent they haven’t paid, how much?” I said, “it’s about $900.” He goes, “son, we do not do ‘about’ here in the court.” (laughs)
AC: So I said, “it’s ok, I don’t need the judgment.” In front of all these people. (laughs)
JA: “Just get me out of here!”
AC: Oh, the mistakes we make when we’re younger.
JA: Well, at least you got them out.
AC: Yeah I did. And then there was motorcycle grease on the carpet.
JA: Did you keep that or do you sell it?
AC: The motorcycle?
JA: No! Well did they leave the motorcycle there??
AC: Oh you mean the house. No, I put new carpet in and sold as fast as I could. (laughs) Bad experience.
JA: Yeah get me the hell out of here. (laughs) That’s it for us today, for Big Al Clopine, I’m Joe Anderson. Show’s called Your Money, Your Wealth.
So, to recap today’s show: At the time of the recording of this podcast, Trump tax reform is still up in the air, but taking a look now at how the proposed changes might affect you is a really good idea. Getting a side hustle, downsizing, getting a better paying job and decreasing your monthly expenditures are all ways for procrastinators to catch up on retirement savings, but the most important tip is to save automatically before you begin spending. And real estate can be a great investment but keep in mind, you might end up having to replace the carpet and call the sheriff.
Special thanks to our guest, Luxe. Learn more strategies for living the life of Luxe at TheLuxeStrategist.com
Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer on Your Money, Your Wealth, just email firstname.lastname@example.org, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com
Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.