July 2023
Firstly, the article suggests readers avoid taking on debt for college. However, Mike says sometimes, taking on debt is the only route students can take. This is okay if the student is responsible and has the right personality to successfully finish college and eventually pay their debt off.
Secondly, the article encourages listeners to try to buy a home in cash. Mike says this is not realistic for most homebuyers. Furthermore, many people may not want to have all their money tied up in their property. How someone leverages their home is based on the individual, their risk tolerance, time limit, etc.
The article also reminds readers to formally request their Social Security benefits and do proper research, call different Social Security offices, and work with a financial professional since there are many complicated rules that can easily be muddled by different members of the Social Security Administration.
The final point of the article tells readers to seek jobs in fields that are less competitive because this increases one’s chance of success. Mike and Chris say while this may be true, it is important to choose a job and career path that one ultimately finds enjoyment and fulfillment in.
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Watch previous episodes of THE FINANCIAL COMMUTE here:
Ep. 42 Midyear Market Update: Opportunities in the Second Half of 2023
Ep. 41 Food Lending with an Emphasis on Risk Management
Hello, everybody. Thank you for joining us for another episode of THE FINANCIAL COMMUTE. I'm your host, Chris Galeski joined by wealth advisor at Morton Wealth, Mike Rudow. Mike, thanks for joining us.
Oh, my pleasure. It's it's fun to be here. I've been I've been looking forward to getting the invitation to come back. It's been a while. Yeah. But yeah, I'm really excited to be here.
So we came across an article. I know. You know, typically we're here to talk about what's going on in the world, how it affects you and what you can do about it. But we came across a great article on CNBC by a Harvard trained economist. Top 21 financial rules that everybody should do. And we sort of laughed about it because these articles are great.
There's some really good information in them, but they have to take such a hard line stance on so many topics that, life doesn't really work out that way. So what we're going to do today is we've handpicked a few of these and we're just going to talk about the controversial nature of them and maybe what's true or not true about them.
Yeah. And my first take when reading that article is, gosh, this seems really dogmatic, like life is not that black and white. Some of these topics, like how could you even be so decisive in telling that's the way you have to do it? So I think having a conversation around it and to anyone who's read similar articles and feel like they might be on the wrong path because of it, I don't think anything in life is that black and white.
But we'll get through these topics.
And let's start with the first one that's barely black and white. Don't borrow for college. Basically says it's all it's far too risky and expensive. He's a college professor and you can get a fine education without mortgaging your future and potentially dashing your career plan. I'm in agreement with the sort of headline of that nobody should take on exorbitant amount of debt in order to have a low paying job in the future.
That's just financial suicide.
Yeah, no, I agree with that too. But also, look, you're young when you're going into college. If you don't know what you want to be and if there's a very large chance that you're going to change what you want to study multiple times, then maybe it doesn't make sense to take on a large amount of debt to discover that.
Right. But if, you know, if you're dead set, you want to be a lawyer, you want to be a doctor. You've been working through that for through your whole life. High school education. It's part of your DNA. Well, then I think taking out debt, if needed, is your only choice, right? You know that you want to get from point A to B, and if you're not going to sacrifice going to college and getting that education so that you can be that professional just because you're not in a in a position where you could fund it on your own and your parents aren't in a position where they can help you out.
Like it's not that simple. So some people might be forced to take out debt, and that's okay as long as they're the right personality type the right fit to be taking on that debt.
With so many people, their ability to be a high income earner is predicated on their their knowledge, their experience, you know, the things that they put themselves into, their passions. And some of those things lie in terms of the education that you that you get or the life experiences that you have. And college can be a great way to build in that work, but also, you know, learn about something that later on.
I do agree, though, that, you know, if you're if you're going to be going into a career where you're max earnings are to $50,000-$75,000 a year, which is, you know, a good living. It's it's not affordable in some places like Southern California, but it's a good living in most of the country, taking on $300,000, $400,000 or $500,000 worth of student debt is is not worth it.
Yeah.
You'd be taking your whole life to pay back that debt and it would impact your quality of life. Yeah, right. But there's there's also variations to that, right? If like, if you've got a high school student that lives in, you know, the rural part of the middle of the United States and has always dreamed about living in New York and had the opportunity because they got into university in New York.
Well, those next four years might be the most impactful years of their life. And they you know, they're going to accomplish a dream to live in a city like that. They're going to build a network of friends that they're probably going to have for the rest of their lives. That could change the landscape of what the rest of their life looks like as far as opportunity.
So maybe not being irresponsible about taking on debt, maybe going into it, knowing I'm going to have to take on a part time job so I could limit the amount of debt that I'm taking out. And I'm going to look for different ways, different avenues where I can get grants or scholarships or or maybe even going to a junior college for a couple of years and then taking on that experience where you're taking on a little of that.
But it's only for two years. I think there's a lot of real conversations that you have to have with your family, your support group, to understand, okay, what are the goals? And, you know, what is this next four years going to look like and how is it going to impact me? But I don't you know, I don't think when you just read don't borrow for college, like I don't know how realistic that is for a lot of people.
I agree. And that's partly why, you know, I love these articles, the controversial nature of them. All right. So we agree that college get education is important, but don't borrowing being that black and white, it's life just doesn't work.
You have to have a business plan going in.
So here's another one. This is very controversial. We deal with this on a daily basis with our clients. What should I do about my home and my mortgage? Should I pay it off? Should I keep it? This headline says, Strive to own your home, not rent, and try to buy in cash. I don't know that one I really struggle with because people some people are okay with debt.
Some people debt really bothers them. We see a lot of people that have the majority of their net worth tied up in their home, you know, So they're, you know, sort of house poor or house rich, so to speak. And who's got an extra million lying around just to go buy a house with a house with cash? It's not realistic for an article that's meant to go out to the masses, right?
Yeah.
I mean, look, when you're just starting a family, I think a lot of people's goal is to get into ownership of a property family home. Right. No one in Southern California on their own has enough cash sitting around to buy in to our real estate market. It's not realistic.
With interest rates where they were, you know, and you could lock in a 30 year fixed mortgage at two and a half, 3%, which was historically low, obviously it makes sense to borrow money. In my opinion, I think when you have the opportunity to borrow money cheap and then you have the opportunity to then pay that off over 30 years and start to accumulate wealth by the appreciation of your property, it makes sense. In a higher interest rate environment, there's a little bit more of an argument where you want to take out less debt because you're paying higher interest. But it it also comes down to who the individual is and their risk tolerance, right? I don't think people want to have all of their money strapped up in their homes. They want to have the opportunity to invest that money, have that money, make money so that they can use that money for other things, and creating a better lifestyle.
So I came across another article that was sort of picking on home ownership because you hear the phrase, Oh, your home can be your best investment you've ever made. And it's, you know, pointing to the fact that real estate has done very, very well for the past 20, 30, 40, 50 years. In their situations where it's like, oh, I bought this home for, you know, $500,000 and now it's worth two and a half million dollars today.
And sure, that's a great return. And let's just say that that was over the last, you know, call it 20 years, but people are just looking at it from the high level standpoint. I bought something for 500,000. It's now worth two and a half million. But they're not factoring all the costs associated with that home. Right. To factor in what was my real, real return?
Right. You paid for water heater and maintenance and paint and, you know, appliances and furniture. You've got to calculate that in there to compare it to a different investment. If you were to just buy a passive rental property, then now somebody else is paying for.
So absolutely. Yeah, I think it's easy to skew those numbers and make it seem a lot more attractive than it might be. Not to say that owning real estate isn't attractive, but but I agree with that. Look, when you when it comes down to taking out leverage, telling real estate, I think it might be the only opportunity for people to get into real estate.
So I don't think it's fair to say that you should only own real estate if you know it's leverage free. But I do think that we need to have a plan going into it. People need to have a plan going into it to understand if they have excess income coming in, if they should be putting that to pay down their mortgage or if they should be putting that to invest in other vehicles to to generate income.
And I think it's based on who that person is, what their risk tolerance is, what their timeline is. Right. Yeah, it goes back to that old adage, like everyone is different.
And I'm glad that you brought up that point somebody's risk tolerance. What they're comfortable with with regards to debt, what their financial plan looks like. Over the weekend, I was with a business owner friend of mine. He's had a lot of success in his life. He has been paying interest only loans on his home. He's got a beautiful home, but he's been paying interest only loans on his home for like 20 years because mathematically, he it does not make sense for him in his mind or in his his opinion to be making principal payments towards paying off the home when he can take those dollars and put it into his business and make even more of a return. You know, so here's an example of a very successful person that said, hey, I'm fine with debt. And I actually don't really care what the interest rate is. I just want to make sure it's amount of debt that I'm comfortable with and the money that would have gone towards paying down principal I'm putting into my business to create more.
So he's taking advantage of that.
Yeah, absolutely. And he he is someone who has a higher risk tolerance because that gap that you're talking about and putting it back into his business, that's not guaranteed. That business could fail. There's a lot of businesses that do, but he's got enough confidence and he's got enough of a risk tolerance to know that, hey, I've I'm going to put it in my business and I'm going to work hard to make sure that money makes more money, Sure.
And so, again, it comes down to who you are.
Sure. Here's here's one of the topics that you and I actually really liked about this article. And it has to do with Social Security. If you don't formally request your Social Security benefits, you won't get them. And then it goes on to make another point is that the Social Security Administration's program operations manual system has thousands of rules which staff can often get wrong in part or in full.
So it's basically saying two things, number one, nobody's going to knock on your door and say, hey, you forgot this money when they give it to you. There is a six month lookback. So if you, you know, forget to take it. You know, you can you can get up to six months. But then the other part of it is make sure you're working with a finance professional and doing your own research and talking to multiple offices because there's a good chance that you might have gotten bad advice because it is so complicated.
Yeah, I mean, that's kind of scary when you think about it. The Social Security Administration office that you're going to call might be giving you bad advice. Right. And the case is Social Security's really complex. And the people that are working there probably don't understand it. You know, from point A to Z. So having a team of financial advisors and other professionals that can help you navigate that plus doing your due diligence and calling multiple Social Security offices, if you're not ending up with the benefit that you think that you deserve that you've paid into because of one Social Security administration person telling you that.
Yeah. Then don't stop there. You know, I think I think it's and no one's going to do it for you. We all have to look out for ourselves. And that's why we have teams of professionals to to help us. But yeah, I've had clients that, you know, have called me and they're 70 plus years old, and they said, When am I going to start collecting my Social Security checks?
Okay, well, you're going to start when you register for Social Security, Right? And I think it's eye opening for a lot of people because they think, you know, because they've been paying into a system that automatically when they qualify for it, they're going to get those checks. But that is not the case. So.
Yeah, financial education is just so important on so many different levels. We started talking about, you know, college loans and we're talking about Social Security right now component that, you know, many people rely on. And so when it comes to Social Security, you're eligible to start receiving payments at 62. You're, the maximum timeframe that you can wait to receive is age 70.
So as you near age 70 years old, if you have not started taking Social Security, you should you should start looking into it. Leverage your financial professional, start calling around. If you're over 70 and you've paid into the system and you qualify and are eligible, you should be looking to go into that. Absolutely. And that goes for spousal benefits, too.
Yeah. Just because you enroll, doesn’t it mean that all of a sudden your spouse is going to receive what they're entitled to? So make sure make sure you're going through that. So I really I really like the fact that this article pointed out the flaws in a system that is so popular. Yeah, I agree. All right, last one.
Choose jobs that everybody but you hate and the premise of this is if you want to maximize your income, you might have a better chance of doing that in an industry where there's less competition. And as athletes and competitors, you and I struggle with this. Yeah.
Absolutely. Look, I get what the point that he's trying to come across, right? There's a lot of competition out there for certain sectors, you know? Right. If all of a sudden everyone wanted to be software engineers, all of a sudden, you know, everyone wanted these certain glorious, glamorous, high paying jobs. And it really made it hard for select individuals to to break into those industries.
And look, if I had two passions and one of them is in a extremely competitive field and one of them is like something like, why would you want to do that? Maybe I'd pick the one that's got less demand because my opportunity for success there would be probably much higher than in the competitive field. But I'm I will never coach my kids or my clients to find a job that no one else wants just because they can be successful in it.
The passion has to be there first. It has to be something that you're good at, you're willing to do and you love doing. Yeah.
So I look, I love boats and I love fishing. I'm not about to go join Deadliest Catch. I mean, that's a very dangerous job. I might get paid very well, but I would much rather be in an industry like finance as a lot of competition. But economics of scale. Right. So interesting. I love these articles.
Mike, thank you so much for joining us today. And, you know, again, key takeaways. Most financial decisions in life are personal and unique to you. So please leverage one of us as an advisor or look at your financial plan to determine whether or not some of these things are smart decisions for you.
And if you're not getting social Security, call the Social Security Office.
Disclosure: Information presented herein is for discussion and illustrative purposes only. The views and opinions expressed by the speakers are as of the date of the recording and are subject to change. These views are not intended as a recommendation to buy or sell any securities, and should not be relied on as financial, tax or legal advice. You should consult with your financial, legal, and tax professionals before implementing any transactions and/or strategies concerning your finances.
