My husband and I had a business that failed 10 years ago. After that a few years after we got a whopping bill from the IRS for back taxes for 75,000. Well, we obviously didn't have that money so we pulled it from our retirement fund - we were in our early 40's at the time. We were devastated to say the least, but paid them and never looked back and continued to pay into our retirements since then like crazy - double in fact. We are caught up and then some, but only because we knew we had to be careful. We'll be okay and will never partner with someone again. We all heard this story - do NOT partner with friends. Very true and we've learned our lesson.
1. You should keep your credit limit as low as possible 2. You have to fully combine your finances with your partner when you get married 3. You have to pay off all your debts before you start saving 4. Investing means individual stocks. (See link below video.) 5. You can borrow from your retirement account if you need a little loan. 6. A home is the safest investment you can make
I found this channel a couple months ago and was immediately blown away by how wonderfully informative, well structured and easy to digest your videos are. I can honestly say that since subscribing to TFD, I have learnt a whole lot about healthy financial choices and have seriously started looking at my money in a better way than I did before. Keep up the great work and thank you!
Thank you for debunking these myths. With regards to the last myth about buying a home though: I appreciate that you said that we should buy a home that we can afford, especially in the initial years-- so true! Don't buy a larger home than necessary because if I lose my job, what then? But buying a home is also more than just an "investment." It's about that sense of security and accomplishment (especially when the mortgage is paid off!), and giving my family long-term memories in one home. So I still think home ownership is a positive eventual goal to attain, even if we cannot afford it in our early working years.
Chelsea, Thank you so much for these videos. I spent a lot of my 20s in fear of my finances. Since I've been watching your channel I have got things more under control and I have a plan for my financial future. I just want to add, for any Canadian viewers, that you are allowed (at least in Ontario) to borrow from your RRSP (which is a registered retirement savings plan similar to an IRA) as a down payment for your first home or mortgage. There is no tax penalty, but there is a time limit for you to pay it back. Thanks again!
I would love to know more about repairing / building a credit score. Hearing it first hand from someone who rebuilt a good score is way more helpful and easy to understand than just reading tips on a credit report site.
Great video Chelsea! Wish there would be more videos in a week! I always learn a lot from you but in Europe things are slightly different so I always have to do some more research about the various topics. Retirement here is different just like investing. Would you make a video about investing for beginners, how to, tutorial or something like that?
Yes, the whole student loans thing is so different here in Europe. And Chelsea did live here for a while and her partner is French. Chelsea, how about a "10 things you need to know about finances in Europe"-video? ;-)
I agree completely with #2. If you and your partner are not on the same page financially, you are in for financial ruin. I saw this with my own parents. My mom was the saver with good credit and my dad destroyed her credit and her finances being a spendthrift and NOTHING could get him to stop his destructive spending until they seperated and he had to deal with his stupidity on money on his own.
Danisha Pop there’s a little flawed information in this as 99% of the time you’ll benefit long term by purchasing your property. Even if you’re not profiting as much as you plan, it’s rare that after 5 years one is to lose more money from their mortgage and sale rather than the expenses of renting where there is a 100% guarantee where you’ll receive no investment in a purely residential lease
No, what she said wasn't flawed at all. Buying a home is a huge financial decision, and there are a lot of risks associated with owning a home (capital depreciation from market factors, physical damage, ect.). It's easy to look at the price when you buy and the price when you sell and say "Oh look at all the money I made" but that's missing a lot of information. For one thing, any additional expenses that went to commissions or were used for maintenance or improvement need to be included. You also have to consider the time value of your investment and the opportunity cost of taking on such a large endeavor. Home prices tend to appreciate slower than common stock, so if you invest a substantial amount of your capital in a home, you will likely be lowering your return from what you could have received in an index fund. You also can't really get up and leave once you buy a home, you're pretty much stuck there. Homes aren't particularly liquid investments. You can try to rent it out and collect passive income, but this takes on additional risk (Will the tenets pay, what if they break something, ect.). You also take on a substantial obligation with a mortgage. If you break a lease, they can only come after you for so much, if you default on your home, you lose the house. If the home has lost significant equity, the bank may be able to come after you for not only your home, but also the lost equity. There is a lot more risk associated with home ownership vs. renting. I'm not saying buying a home is always a terrible decision. Sometimes it's the best decision based on the circumstances. That said, she's was completely correct in her assessment that home ownership is not the end all beat all to investing. Just like with most things, it's more nuanced than "Always strive to do X".
Buying a home is very expensive. If you rent the house it will take you a long time until you gain more money from the house than you spent buying it (profit). If you live in the home, what happens if you get a job elsewhere?
I would recommend only buying houses if you’re planning on any important land usage (I’m starting a homestead for example), or if you or your partner is competent with home repairs, plumbing, etc. Most houses you buy WILL need work, and it’s a huge investment + the cost of the house that many people don’t anticipate. Sure, your mortgage costs are going to be cheaper than some rentals, but you have to remember that it is now you who is paying for any damages on appliances, plumbing, etc.
1) Olivia is amazingly wise and her advice really hit home 2) I wish this came out 10 years ago: I've made almost all these mistakes and I'm paying for it now
As for buying property: I agree with choosing wisely and not overreaching. Rent basically has an appreciation of -100% though. It's gone. Even if you lose 20% worth on your property you still have 80% left. So it's still better than renting. If you have to finance the property your interest rate is basically a depreciation in your calculation. As long as interest plus depreciation and ownership related costs are not higher than the price you bought the property for buying is better than renting, which it will be in most cases. The only way to mess this calculation up is to overextend when buying, which is a mistake a lot of people make.
Michael Schulze there are several factors, that you have to include the "other ownership cost", so few examples: -depreciation, repairs just to tell you, it's a lot of money -insurance -capital cost (also a lot, when you are finally owning a house) -flexibility costs Also capital cost again, because usually one has to put down at least 20% of the price on their own, which has huge costs, ppl just don't think about. Ofc, renting has its dark side, but I think a lot of ppl forget to include a lot of relevant cost, so the decision is onesided...
Regarding the 401k money myth... some programs allow you to borrow form them for say a home or car down payment or covering a % of a renovation. For a small initiation fee and an even smaller quarterly or semi-annual maintenance fee... then any interest due on the loan actually goes BACK to YOUR 401k... You're your own banker. If your loan interest you're paying yourself is only 5%, and the market grows faster than that, you're only out the difference in the growth rates... Beside that lost investmetn growth opportunity and maintenance fees, beware, if it's through an employee sponsored program and you leave your employer, the balance of the loan will be due. I've done this a couple of times and is another nice option if you've got a vested balance to draw on temporarily. Thanks TFD & keep up the great work!
Love everything about this channel! Gotta disagree with some points: - Pay all your debt before setting up EF (except home). It will take 2 to 3 years of eating noddles for dinner, but you NEED focus and go after your debt like crazy. - Marriages are not join ventures. Ok to have some separate account, sure, but finances should be combined. Totally possible to involve spouse in Money decisions in a joint account, why not?
I love hearing Chelsea swear, it makes all the serious money talk just seem so much more down to earth and Real. Like I'll hear "I did a segment on a finance show at the NYSE" and my brain glazes over but she follows up with "that shit was silent" and it's just perfect
I love watching your content. I know that I, and so many others, would really benefit from a kind of "finances for dummies" series where you guys just talked us through all the systems and terms that no one is educating the general public on. Keep doing what you're doing ladies, you're helping so many!
do you think we need to have such a large emergency fund? because Chelsea mentioned in case you get ill, but we have the NHS & work/government sick pay.
Claire G I personally think an emergency fund in general is a brilliant idea. Sure the NHS pays for our healthcare and we probably have slightly better (though still poverty level) benefits in case we lose our jobs. But any other. Umber of emergencies could occur including being too ill to work etc. I know a lot of financial advisers in the UK that actually recommend a 6 month emergency fund as the gold-standard
As a recent home buyer, I can confidently say that I know it wasn't exactly the best place to put our money. What I tell people who are looking at buying is that buying should be an emotional decision that you make when you are financially ready, and not a financial decision. My hubby and I bought for a few reasons, the biggest being that I wanted to own a home before we started a family so that is something happened to our rental we wouldn't have to move if we didn't want to. I also HATE moving. Before we bought we had built up a 6 month full expenses emergency fund, in addition to our 20% down payment and 15% for closing costs. We also choose a home that was a little larger than we needed right now, but would likely still work for us in 5 years and beyond (planning on two kids and starting in a year or two, so 3 bedroom, 2.5 bath in a kid friendly hood with a basement for office/guest room down the line). We are renting out one of the spare rooms on Airbnb for now, and it is bringing in more than the extra cost compared to rent/mortgage on a smaller place, of having that room. This is a definite bonus, but not needed for us to cover expenses. Couple notes, we live in a city that because of the high population of young people has higher rent and lower owning costs. We also purchased a home in an up and coming, aka gentrifying, neighborhood and not an established mainstay. We are paying less on our mortgage than we did in our first apartment in the established neighborhood where we lived for 2 years, so we know we will be able to maintain these costs easily. Again, buying a home is an emotional decision. Buy when the money is there IF it is what you really want.
For young people it's often better to rent than to buy. It gives you freedom to move around (for example if your job offers you a major promotion that comes with a 30% pay raise but requires moving to a different city/state/country).
A myth not shared because of the ideology of this channel is your credit score defines your financial success. Credit score seems to be crucial to financial stability according to this channel. Aside from that I have enjoyed the channel and taken much of the information shared; but whether you are good with money or irresponsible with finances is not necessarily based off credit score. Many people have bad scores but do well with managing money.
taoist40 It can be important, but that does not mean it is necessary to be financially successful. It is important to marry someone you truly love and care about, but marriage is not necessary to be happy.
Anna Drozd I would not compare credit and Bitcoins to magic beans, but yes, the value of bitcoin is dependent on people. Although, bitcoin is being viewed internationally by banks on whether it will be accepted as a legit currency. Russia and Japan are working on making their own cryptocurrency, and Goldman Sachs is considering accepting Bitcoins.
Could someone explain to me (as a person from outside of the US) what the big deal is with credit scores? Do they determine your interest rate or something? Because for us (the Netherlands) - as long as you are not seriously falling behind in payments or in some sort of debt you can't pay, it doesn't really matter how happy the bank (or credit card company) is with you as a customer. It doesn't really impact your life. But I have heard lots of people from the US talk about credit scores (other than just sort of the pass/fail system) as if they matter.
Snowshowslow My thought too. Swede. If you fall behind on your bills too long you get marked with a ”dot/spot” in you credit history for like two years. Meaning you can’t sign new contracts, bills etc. But you don’t get ahead on like getting a loan if youve had a credit card for a couple of year. Full time employment that covers your would-be yearly payment etc is what matters.
Please make a video for apps not USA exclusive. Things like IRAs and the student debt situacion and some of the apps you push only apply to Usa, in some cases its just a language thing,
I'm in Australia, WHERE CAN I BUY THIS BOOK?! It sounds amazing! In #2 when you read Olivia's section I said "ugh YES!" Out loud because the whole thing resonated so well with me. I've learned so much about finances from the financial diet and would love to know more and would also love to help support you guys because you have helped me so much!
First 3 run the complete opposite of what Dave Ramsey says. Number 6 Dave doesn't necessarily care about appreciation. House is 25 percent of take home pay. Debt free 6 month emergency fund and you keep the house at least 5 years on a 15 year mortgage.
"That shit was silent." Hahaha nice :) I enjoy each video so much! And it's good to hear you say these things, so I can become more confident with my $$$
Do you guys have, or can you make, a video or two on all the ins and outs of credit cards, especially for people who have never dealt with them before and are unsure about getting one? How necessary is it to have one in modern America? I've avoided them because I hate the idea of (more) debt and paying more for something than the real cost because of the interest on the card, but people have told me I'm "supposed" to have one for those big adult purchases in life.
Hey the tips are good. But it would be nice if you did one, that involved or touched on manufactured homes as an investment. That is if you did not do one already, as that is something a lot of people do not understand when looking at buying a home.
I understand contributing prerax to get the company match, but beyond that, if i contribute on a pretax basis, wont taxes likely be a lot higher when I'm ready to retire which would end up losing my money opposed to contributing on a post tax basis?
Hey Chelsea, great segment! One question about the 401k part though, and that the first mortgage would justify breaking the 401k. Can you please expand on that? I'm in the market for buying a house, and using my 401k would help me a lot.
Thank you for what you said about not breaking the 401(k). I had to do this a few years ago to buy a house because I couldn’t find a place to rent that I could afford with all of my pets and I had to move out of a bad situation. In order to get my mortgage I had to pay off my car and yada yada yada. I paid penalties at tax time and then the IRS came back to years later and wanted more money it’s just not worth it.
People please please understand that getting married does not mean instantly opening a joint acct. keeping ur individual accts is super important. For example my parents maintained separate accts, my dad wrecked his credit with store charge accts and credit cards, THIS MEANS the other persons good credit is necessary to make lrg purchases bc they r more likely to get financing when needed. Like an appliance emergency (ie need a new fridge, washer, ect) happens, the person with the good credit can finance the costly items if needed. Good luck everybody
I'm really beginning to appreciate this channel. It's very informative fora part of my lie I haven't reached yet, and that means a lot to me. I always like to keep my options open. Could you make videos about what it's like to BUILD your own home rather than BUY it? I WANT BUILD A HAYBALE OR HEMPCRETE HOME!! Natural building techniques. But it would be an interesting thought experiment money wise whatever building materials you choose...
I'm turning 40 in a couple of months and have been watching this channel faithfully since I've come upon it. When she was talking about the home buying the parents being on us about getting one, she was SPOT ON. And, naturally, 4 years later comes the crash and we're still upside down with our house.
Good video, but how much of an emergency fund do I need if I have income protection insurance which covers me for my mortgage and other monthly bills if I get made redundant or get an illness/have an accident which makes me unable to work? Surely it wouldn’t still be 3-6 months worth?
Good info, but credit utilization is considered "excellent" at about 10%. Luckily, utilization only stays with you for the most recent statement, so as long as you keep it low for a month or so before you apply for a new line of credit, you should be fine!
I wanted a higher credit limit but had no credit rating as a new graduate who has never borrowed money before or had a credit card, so they have a me a kind of lowish amount.
um i want to ask about the myth about taking a loan from the 401k. My employer sponsors a 401k for me and the company that handles that 401k allows us to take out a loan against it. we have to pay it back and that happens automatically through our paycheck and is agreed upon at the time of borrowing, how long we want to take to pay it back. it also is not considered opening up the 401k because we dont pay tax on it since we pay it all back. is this something you are familiar with? is it bad?
jmail1984 if you were to leave your job you would either have to pay back the entire amount I think within 60 days or pay your tax rate plus 10 percent penalty.
brentkillian oh! Ok, well I plan to stay at my job in the near future at least lol. I'm glad you told me that though, I will start treating my 401k a lot more carefully.
There is no set percentage of your monthly income for an emergency fund. An emergency fund should cover unforeseen financial expenses, the worst of which would include the complete loss of income for a period of time (being laid off or fired from a job for example). Therefore, one months worth of emergency savings should be enough to cover one months worth of expenses that cannot be cut quickly or easily and/or are necessities (food, utilities, house payment, etc). Most financial planner recommend keeping an emergency fund of 3 to 6 months on hand, which depending on your individual situation could take several months to save up.
Hey! I like to watch your videos.Somehow it is funny to me,because most of the stuff that you talk about are common sense in my culture.Like,this you learn in school,family...It is basically how to be responsible.And the women work side to side with the men.In Europe it is not so common to have credit cards,so the people don't spend what they don't earn...I think from there comes this money responsability.Thank you so much for your videos and for your work! I appreciate it :)
Fantastic video! All points are spot on. Chelsea, such a great point about how retirement solutions are basically a long term social construct that grants these tax advantages. Re: #4: Trying to manage individual stocks will *devastate* your savings. It's not a matter of "if" it's a matter of "when." The market is far too fickle, fast and detached for most people to remotely attempt "playing" in the market. The amount of research to find good deals is massive, ongoing and literally a full time job and prone to costly mistakes even by the pros -- financial advisers and stock brokers _still_ mess up more often than not. Re: #5: I second "Hell No!" and emphasize it's not 99% of time that you shouldn't be touching your retirement, it's 99.99% of the time. If you're in your 20's, put at much effort to putting your money into IRAs (both normal and Roth), ETFs (re-watch #4), 401Ks where the company matches, mutual funds and the like. Anything that will earn your hard earned money even more money. And then *don't touch it until you're retired* (other than to add more $$$ or rebalance it).
Bridget Casey has some good videos on different types of Investment Funds - her channel is somewhat more geared towards practical investing advice than TFD.
Lachin C 401(k) is an employer sponsored plan for retirement. Most investments will be in the stock market. Some companies match your contributions. For instance if you put a dollar in the 401(k) your employer will put a dollar in as well effectively doubling your investment. Since the investment is in the stock market it can go up or down so be prepared for that however as long as you are investing for the long haul the goal is for your money to grow over the coming decades. Now the drawbacks to the 401(k) is that you can’t touch the money until you are 59 and a half or you will be penalized heavily. Usually 10 percent up front and another 20 percentage from other taxes as well. So if you need the money in a short term or you don’t have an emergency fund it would probably be better to build that up first. Now the 401(k) grows tax free! So you pay no taxes on the growth over time. However once you start to take money out at 59 and a half (if you do choose) that is when you pay taxes. There is a different tax rate on the withdrawal but to keep things simple I’ll just say you gotta pay those taxes then. Any other questions I’d be glad to answer!
Hey financial diet. Can you make a video on What your thoughts on crypto currency? And should your average Joe start investing in it? All your videos are very helpful! Keep it up!
It's not an investment. It's speculation. Cover your other actual investments first. If you have a bunch of extra money to 'play' with, THEN you can gamble with crypto.
Now someone just needs to explain how to choose the right house to buy. So many people in the comment section are saying they are glad they haven't bought a house but that's not the point that was made in the video.
I wish these issues were taught in school. I had no clue I didn't have a credit score when I was in my early 20's until I talked to a mortgage broker. My real estate agent taught me how to use a credit card to maintain a good credit score. This is something that I should have been taught in high school. They teach us a lot of subjects that we will rarely use in life, but not the basic life skills we need to maintain an adult life.
Great videos as usual. I just want to tell you that i get a little bit anxious because you guys speak very fast (in my perspective). I wish the pacing of the videos was a wee slower, BUT, i know also that is a lot of content for some videos and you have to speed it up a notch in order to deliver everything in certain amount of time. I just get anxious with the headphones, as someone was rushing me to save my money lol. Cheers girls. x
I always rent and probably will, as I move around a lot and due to the nature of my job, settling down in one place only becomes an option after your 35+ years old.
Thanks! Currently trying to transfer mine to a different company but I'm not even sure I could even withdraw my pension - definitely a rule for the best!
I really have to disagree with the point of buying a home. I agree that buying a home and expecting a huge profit from when you bought the home, that probably won't be the case. The housing market is not great. I will also say that my area may not be the Same as other areas, but from everywhere I have looked, mortgage payments are much less expensive than renting. In my experience a mortgage payment is half the price of renting including insurance. With that you do want to put some of that savings away each month for upkeep or if any appliances go out etc. So stick to the low end of what you have available to borrow. In renting i was literally living paycheck to paycheck. My savings was a piggy bank of quarters which usually went to transportation when I could not quite make it to the next paycheck. Cutting our rent in half is allowing us to now put money into savings. On top of that, 5 to 10 years down the road we will have a substantial down payment if we wanted to sell and move into something else. In renting its a gamble of if you are even going to get your deposit back. All that money each month has gone into someone else's pocket. Whereas owning only the interest goes to the bank.
Chelsea shares the myths about millennials that need to die in this video: ua-cam.com/video/IZ72kWfZgwc/v-deo.html.
PLEASE DO MORE VIDEOS ON INVESTING. I mean teach it to me like I'm 5 years old
belladancerella09 YES!!
me three
yesss. i need that too lol
YES!!
Like you're 5 years old? Spend your money on Lego - you'll be playing with it for *years*.
My husband and I had a business that failed 10 years ago. After that a few years after we got a whopping bill from the IRS for back taxes for 75,000. Well, we obviously didn't have that money so we pulled it from our retirement fund - we were in our early 40's at the time. We were devastated to say the least, but paid them and never looked back and continued to pay into our retirements since then like crazy - double in fact. We are caught up and then some, but only because we knew we had to be careful. We'll be okay and will never partner with someone again. We all heard this story - do NOT partner with friends. Very true and we've learned our lesson.
Could you please do an episode breaking down early stages of investing? IRAs and mutual funds?
That's on our to-do list! :)
-C
I'm so excited! Looking forward to it! :)
Step 1. Open an IRA.
Step 2. deposit $5,500.
Step 3.
Step 4. Profit
Step three is buy index funds, it just doesn't work with the south park reference if I include it. But seriously, it's that simple.
1. You should keep your credit limit as low as possible
2. You have to fully combine your finances with your partner when you get married
3. You have to pay off all your debts before you start saving
4. Investing means individual stocks. (See link below video.)
5. You can borrow from your retirement account if you need a little loan.
6. A home is the safest investment you can make
I found this channel a couple months ago and was immediately blown away by how wonderfully informative, well structured and easy to digest your videos are. I can honestly say that since subscribing to TFD, I have learnt a whole lot about healthy financial choices and have seriously started looking at my money in a better way than I did before. Keep up the great work and thank you!
You should read the blog as well.
Me too!👌👌
Thank you for debunking these myths. With regards to the last myth about buying a home though: I appreciate that you said that we should buy a home that we can afford, especially in the initial years-- so true! Don't buy a larger home than necessary because if I lose my job, what then? But buying a home is also more than just an "investment." It's about that sense of security and accomplishment (especially when the mortgage is paid off!), and giving my family long-term memories in one home. So I still think home ownership is a positive eventual goal to attain, even if we cannot afford it in our early working years.
Yall are killing it! Wish we could have more videos in a week.
You just may get that sooner than you think! :D
-C
I will stay tuned 😊
TFD is gonna have their own book? That’s awesome, definitely going to be picking it up when it hits shelves
Yep! Can't wait to share it with everyone!
-C
Chelsea,
Thank you so much for these videos. I spent a lot of my 20s in fear of my finances. Since I've been watching your channel I have got things more under control and I have a plan for my financial future.
I just want to add, for any Canadian viewers, that you are allowed (at least in Ontario) to borrow from your RRSP (which is a registered retirement savings plan similar to an IRA) as a down payment for your first home or mortgage. There is no tax penalty, but there is a time limit for you to pay it back.
Thanks again!
hknits me too. I’m gonna be 30 in February so I am trying to catch up on my finances. Thanks again!
I liked this for Chelsea's "HELL NO"
+
Please never stop this channel this is so vital for all of us! By the way I like how you give clear and easy examples and everything. Never leave pls.
I would love to know more about repairing / building a credit score. Hearing it first hand from someone who rebuilt a good score is way more helpful and easy to understand than just reading tips on a credit report site.
Great video Chelsea! Wish there would be more videos in a week! I always learn a lot from you but in Europe things are slightly different so I always have to do some more research about the various topics. Retirement here is different just like investing. Would you make a video about investing for beginners, how to, tutorial or something like that?
Nora Csiszar same here in New Zealand. Things like retirement savings are different. And also student loans.
Yes, the whole student loans thing is so different here in Europe. And Chelsea did live here for a while and her partner is French. Chelsea, how about a "10 things you need to know about finances in Europe"-video? ;-)
Or 10 things that are different financially around the world.
+
I agree completely with #2. If you and your partner are not on the same page financially, you are in for financial ruin. I saw this with my own parents. My mom was the saver with good credit and my dad destroyed her credit and her finances being a spendthrift and NOTHING could get him to stop his destructive spending until they seperated and he had to deal with his stupidity on money on his own.
You speak so well ! So easy to watch and understand 🙌🏽
That's so true!
Well thank you for putting the light on the "buying a home " myth! I was wondering I was doing the good choice by not buying
Danisha Pop there’s a little flawed information in this as 99% of the time you’ll benefit long term by purchasing your property. Even if you’re not profiting as much as you plan, it’s rare that after 5 years one is to lose more money from their mortgage and sale rather than the expenses of renting where there is a 100% guarantee where you’ll receive no investment in a purely residential lease
No, what she said wasn't flawed at all. Buying a home is a huge financial decision, and there are a lot of risks associated with owning a home (capital depreciation from market factors, physical damage, ect.). It's easy to look at the price when you buy and the price when you sell and say "Oh look at all the money I made" but that's missing a lot of information. For one thing, any additional expenses that went to commissions or were used for maintenance or improvement need to be included. You also have to consider the time value of your investment and the opportunity cost of taking on such a large endeavor. Home prices tend to appreciate slower than common stock, so if you invest a substantial amount of your capital in a home, you will likely be lowering your return from what you could have received in an index fund. You also can't really get up and leave once you buy a home, you're pretty much stuck there. Homes aren't particularly liquid investments. You can try to rent it out and collect passive income, but this takes on additional risk (Will the tenets pay, what if they break something, ect.). You also take on a substantial obligation with a mortgage. If you break a lease, they can only come after you for so much, if you default on your home, you lose the house. If the home has lost significant equity, the bank may be able to come after you for not only your home, but also the lost equity. There is a lot more risk associated with home ownership vs. renting.
I'm not saying buying a home is always a terrible decision. Sometimes it's the best decision based on the circumstances. That said, she's was completely correct in her assessment that home ownership is not the end all beat all to investing. Just like with most things, it's more nuanced than "Always strive to do X".
Buying a home is very expensive. If you rent the house it will take you a long time until you gain more money from the house than you spent buying it (profit). If you live in the home, what happens if you get a job elsewhere?
I would recommend only buying houses if you’re planning on any important land usage (I’m starting a homestead for example), or if you or your partner is competent with home repairs, plumbing, etc.
Most houses you buy WILL need work, and it’s a huge investment + the cost of the house that many people don’t anticipate.
Sure, your mortgage costs are going to be cheaper than some rentals, but you have to remember that it is now you who is paying for any damages on appliances, plumbing, etc.
So glad I found this channel! I live in the UK but a lot of these tips are still transferrable.
I wish there was a channel like this but based on Australia, super funds are so confusing
A home should be a home not an investment. That is how we end up with crashes.
Laura Some Number Exactly lol. People are so money obsessed that they see every single thing as a way to make more money
Thanks for the tips :) learned a few things!
1) Olivia is amazingly wise and her advice really hit home
2) I wish this came out 10 years ago: I've made almost all these mistakes and I'm paying for it now
As for buying property: I agree with choosing wisely and not overreaching. Rent basically has an appreciation of -100% though. It's gone. Even if you lose 20% worth on your property you still have 80% left. So it's still better than renting. If you have to finance the property your interest rate is basically a depreciation in your calculation. As long as interest plus depreciation and ownership related costs are not higher than the price you bought the property for buying is better than renting, which it will be in most cases. The only way to mess this calculation up is to overextend when buying, which is a mistake a lot of people make.
Michael Schulze there are several factors, that you have to include the "other ownership cost", so few examples:
-depreciation, repairs just to tell you, it's a lot of money
-insurance
-capital cost (also a lot, when you are finally owning a house)
-flexibility costs
Also capital cost again, because usually one has to put down at least 20% of the price on their own, which has huge costs, ppl just don't think about.
Ofc, renting has its dark side, but I think a lot of ppl forget to include a lot of relevant cost, so the decision is onesided...
Regarding the 401k money myth... some programs allow you to borrow form them for say a home or car down payment or covering a % of a renovation. For a small initiation fee and an even smaller quarterly or semi-annual maintenance fee... then any interest due on the loan actually goes BACK to YOUR 401k... You're your own banker. If your loan interest you're paying yourself is only 5%, and the market grows faster than that, you're only out the difference in the growth rates... Beside that lost investmetn growth opportunity and maintenance fees, beware, if it's through an employee sponsored program and you leave your employer, the balance of the loan will be due. I've done this a couple of times and is another nice option if you've got a vested balance to draw on temporarily.
Thanks TFD & keep up the great work!
Love everything about this channel! Gotta disagree with some points:
- Pay all your debt before setting up EF (except home). It will take 2 to 3 years of eating noddles for dinner, but you NEED focus and go after your debt like crazy.
- Marriages are not join ventures. Ok to have some separate account, sure, but finances should be combined. Totally possible to involve spouse in Money decisions in a joint account, why not?
I love hearing Chelsea swear, it makes all the serious money talk just seem so much more down to earth and Real. Like I'll hear "I did a segment on a finance show at the NYSE" and my brain glazes over but she follows up with "that shit was silent" and it's just perfect
I love watching your content. I know that I, and so many others, would really benefit from a kind of "finances for dummies" series where you guys just talked us through all the systems and terms that no one is educating the general public on. Keep doing what you're doing ladies, you're helping so many!
That shit was silent. It's all on computers now. 😂😂😂😂
Congrats on the book! I really have grown to love you guys and what you're doing for so many of us out here-- you deserve all the success!!
Hey TFD! I really enjoyed this video! Could you please make one about buying vs building a house? Thanks!
Still holding out hope for a UK Financial Diet channel.
Janine Graham me too! Although I think it's mostly transferable to us. LOVE TFD too
do you think we need to have such a large emergency fund? because Chelsea mentioned in case you get ill, but we have the NHS & work/government sick pay.
Claire G I personally think an emergency fund in general is a brilliant idea. Sure the NHS pays for our healthcare and we probably have slightly better (though still poverty level) benefits in case we lose our jobs. But any other. Umber of emergencies could occur including being too ill to work etc. I know a lot of financial advisers in the UK that actually recommend a 6 month emergency fund as the gold-standard
The blog features writers from different countries/backgrounds.
moneysavingexpert.com is pretty much this and more + has their own youtube channel
Thank you for analysing the value of buying a home as an investment. I have suspected that it is not always as great as it sounds for a long time.
As a recent home buyer, I can confidently say that I know it wasn't exactly the best place to put our money. What I tell people who are looking at buying is that buying should be an emotional decision that you make when you are financially ready, and not a financial decision. My hubby and I bought for a few reasons, the biggest being that I wanted to own a home before we started a family so that is something happened to our rental we wouldn't have to move if we didn't want to. I also HATE moving.
Before we bought we had built up a 6 month full expenses emergency fund, in addition to our 20% down payment and 15% for closing costs. We also choose a home that was a little larger than we needed right now, but would likely still work for us in 5 years and beyond (planning on two kids and starting in a year or two, so 3 bedroom, 2.5 bath in a kid friendly hood with a basement for office/guest room down the line).
We are renting out one of the spare rooms on Airbnb for now, and it is bringing in more than the extra cost compared to rent/mortgage on a smaller place, of having that room. This is a definite bonus, but not needed for us to cover expenses.
Couple notes, we live in a city that because of the high population of young people has higher rent and lower owning costs. We also purchased a home in an up and coming, aka gentrifying, neighborhood and not an established mainstay. We are paying less on our mortgage than we did in our first apartment in the established neighborhood where we lived for 2 years, so we know we will be able to maintain these costs easily.
Again, buying a home is an emotional decision. Buy when the money is there IF it is what you really want.
QUESTION! What am I supposed to do about this whole Equifax thing?
Have you guys ever done a video on filing for bankruptcy?
For young people it's often better to rent than to buy. It gives you freedom to move around (for example if your job offers you a major promotion that comes with a 30% pay raise but requires moving to a different city/state/country).
A myth not shared because of the ideology of this channel is your credit score defines your financial success. Credit score seems to be crucial to financial stability according to this channel. Aside from that I have enjoyed the channel and taken much of the information shared; but whether you are good with money or irresponsible with finances is not necessarily based off credit score. Many people have bad scores but do well with managing money.
Max E. James Credit Score is still important. It's too bad Equifax was hacked.
taoist40 It can be important, but that does not mean it is necessary to be financially successful. It is important to marry someone you truly love and care about, but marriage is not necessary to be happy.
Anna Drozd I would not compare credit and Bitcoins to magic beans, but yes, the value of bitcoin is dependent on people. Although, bitcoin is being viewed internationally by banks on whether it will be accepted as a legit currency. Russia and Japan are working on making their own cryptocurrency, and Goldman Sachs is considering accepting Bitcoins.
Could someone explain to me (as a person from outside of the US) what the big deal is with credit scores? Do they determine your interest rate or something? Because for us (the Netherlands) - as long as you are not seriously falling behind in payments or in some sort of debt you can't pay, it doesn't really matter how happy the bank (or credit card company) is with you as a customer. It doesn't really impact your life.
But I have heard lots of people from the US talk about credit scores (other than just sort of the pass/fail system) as if they matter.
Snowshowslow My thought too. Swede.
If you fall behind on your bills too long you get marked with a ”dot/spot” in you credit history for like two years. Meaning you can’t sign new contracts, bills etc.
But you don’t get ahead on like getting a loan if youve had a credit card for a couple of year. Full time employment that covers your would-be yearly payment etc is what matters.
I appreciate that your Amazon affiliate link includes the Smile program! Most people don't think to include that.
I've heard 10% for credit utilization
That sweater looks awesome on you.
Please make a video for apps not USA exclusive.
Things like IRAs and the student debt situacion and some of the apps you push only apply to Usa, in some cases its just a language thing,
I'm in Australia, WHERE CAN I BUY THIS BOOK?! It sounds amazing! In #2 when you read Olivia's section I said "ugh YES!" Out loud because the whole thing resonated so well with me. I've learned so much about finances from the financial diet and would love to know more and would also love to help support you guys because you have helped me so much!
What does TFD think of Dave Ramsey?
Daniel Metcalf Probably not much. Dave a Ramsey is lord.
First 3 run the complete opposite of what Dave Ramsey says. Number 6 Dave doesn't necessarily care about appreciation. House is 25 percent of take home pay. Debt free 6 month emergency fund and you keep the house at least 5 years on a 15 year mortgage.
Do you have any advice for someone who does not want to deal with credit at all?
"That shit was silent." Hahaha nice :) I enjoy each video so much! And it's good to hear you say these things, so I can become more confident with my $$$
About the book, is there any chance it will be made available on Audible?
Do you guys have, or can you make, a video or two on all the ins and outs of credit cards, especially for people who have never dealt with them before and are unsure about getting one? How necessary is it to have one in modern America? I've avoided them because I hate the idea of (more) debt and paying more for something than the real cost because of the interest on the card, but people have told me I'm "supposed" to have one for those big adult purchases in life.
Hey the tips are good. But it would be nice if you did one, that involved or touched on manufactured homes as an investment. That is if you did not do one already, as that is something a lot of people do not understand when looking at buying a home.
I understand contributing prerax to get the company match, but beyond that, if i contribute on a pretax basis, wont taxes likely be a lot higher when I'm ready to retire which would end up losing my money opposed to contributing on a post tax basis?
Can you do a video on choosing/evaluate share funds?
I wish your guys' book was available before Christmas :(
Hey Chelsea, great segment! One question about the 401k part though, and that the first mortgage would justify breaking the 401k. Can you please expand on that? I'm in the market for buying a house, and using my 401k would help me a lot.
I like your sweater. Where did you get it?
I would also like this information.
Is credit utilization the high water mark or how much balance you carry over?
Would you make a video about if its a good investment to buy an apartment and then sublease it? Pros and cons and such. Thanks!
What makes a house appreciate in value more than another? Is it location, renovations, duplex, etc.?
Thank you for your great videos. Happy to see women making money management videos!
Thank you for what you said about not breaking the 401(k). I had to do this a few years ago to buy a house because I couldn’t find a place to rent that I could afford with all of my pets and I had to move out of a bad situation. In order to get my mortgage I had to pay off my car and yada yada yada. I paid penalties at tax time and then the IRS came back to years later and wanted more money it’s just not worth it.
People please please understand that getting married does not mean instantly opening a joint acct. keeping ur individual accts is super important. For example my parents maintained separate accts, my dad wrecked his credit with store charge accts and credit cards, THIS MEANS the other persons good credit is necessary to make lrg purchases bc they r more likely to get financing when needed. Like an appliance emergency (ie need a new fridge, washer, ect) happens, the person with the good credit can finance the costly items if needed. Good luck everybody
Will the book be available to buy in Australia, on flatforms like the book depository?
I'm really beginning to appreciate this channel. It's very informative fora part of my lie I haven't reached yet, and that means a lot to me. I always like to keep my options open.
Could you make videos about what it's like to BUILD your own home rather than BUY it? I WANT BUILD A HAYBALE OR HEMPCRETE HOME!! Natural building techniques. But it would be an interesting thought experiment money wise whatever building materials you choose...
I wish you were around 15years ago. I just recently got my act together at 36. Still appreciate your content, keep it up ladies❤️❤️❤️
I'm turning 40 in a couple of months and have been watching this channel faithfully since I've come upon it. When she was talking about the home buying the parents being on us about getting one, she was SPOT ON. And, naturally, 4 years later comes the crash and we're still upside down with our house.
Good video, but how much of an emergency fund do I need if I have income protection insurance which covers me for my mortgage and other monthly bills if I get made redundant or get an illness/have an accident which makes me unable to work? Surely it wouldn’t still be 3-6 months worth?
Also I would love some more stuff that isn’t USA exclusive. You have lots of overseas fans too! :)
Good info, but credit utilization is considered "excellent" at about 10%. Luckily, utilization only stays with you for the most recent statement, so as long as you keep it low for a month or so before you apply for a new line of credit, you should be fine!
Hey can you do a video focusing on IRAS?
I wanted a higher credit limit but had no credit rating as a new graduate who has never borrowed money before or had a credit card, so they have a me a kind of lowish amount.
um i want to ask about the myth about taking a loan from the 401k. My employer sponsors a 401k for me and the company that handles that 401k allows us to take out a loan against it. we have to pay it back and that happens automatically through our paycheck and is agreed upon at the time of borrowing, how long we want to take to pay it back. it also is not considered opening up the 401k because we dont pay tax on it since we pay it all back. is this something you are familiar with? is it bad?
jmail1984 if you were to leave your job you would either have to pay back the entire amount I think within 60 days or pay your tax rate plus 10 percent penalty.
brentkillian oh! Ok, well I plan to stay at my job in the near future at least lol. I'm glad you told me that though, I will start treating my 401k a lot more carefully.
Question- what percentage of your monthly wages should equal a month's worth of emergency saving?
There is no set percentage of your monthly income for an emergency fund. An emergency fund should cover unforeseen financial expenses, the worst of which would include the complete loss of income for a period of time (being laid off or fired from a job for example). Therefore, one months worth of emergency savings should be enough to cover one months worth of expenses that cannot be cut quickly or easily and/or are necessities (food, utilities, house payment, etc).
Most financial planner recommend keeping an emergency fund of 3 to 6 months on hand, which depending on your individual situation could take several months to save up.
Could you make a video about how to invest for dummies? I keep hearing I ought to but have no clue what to do
Amazing video.
Also, thank you mother for giving me an adult life with no student debt what so ever.
The real MVP that woman. The real MVP!
Hey! I like to watch your videos.Somehow it is funny to me,because most of the stuff that you talk about are common sense in my culture.Like,this you learn in school,family...It is basically how to be responsible.And the women work side to side with the men.In Europe it is not so common to have credit cards,so the people don't spend what they don't earn...I think from there comes this money responsability.Thank you so much for your videos and for your work! I appreciate it :)
Fantastic video! All points are spot on. Chelsea, such a great point about how retirement solutions are basically a long term social construct that grants these tax advantages.
Re: #4: Trying to manage individual stocks will *devastate* your savings. It's not a matter of "if" it's a matter of "when." The market is far too fickle, fast and detached for most people to remotely attempt "playing" in the market. The amount of research to find good deals is massive, ongoing and literally a full time job and prone to costly mistakes even by the pros -- financial advisers and stock brokers _still_ mess up more often than not.
Re: #5: I second "Hell No!" and emphasize it's not 99% of time that you shouldn't be touching your retirement, it's 99.99% of the time. If you're in your 20's, put at much effort to putting your money into IRAs (both normal and Roth), ETFs (re-watch #4), 401Ks where the company matches, mutual funds and the like. Anything that will earn your hard earned money even more money. And then *don't touch it until you're retired* (other than to add more $$$ or rebalance it).
Can you please do a video on investing in Index Funds? I've tried reading about it, but am a visual learner and your videos really help.
Bridget Casey has some good videos on different types of Investment Funds - her channel is somewhat more geared towards practical investing advice than TFD.
thanks, very informative. especially explaining the changes in the value of home ownership since 2008.
so agree to not borrow from your 401 k
Could you do a segment on required minumum distributions?
Hey FD! I was wondering if you could go in depth on how a 401k works? I haven't found a good page that doesn't explain it in super complicated terms
Lachin C 401(k) is an employer sponsored plan for retirement. Most investments will be in the stock market. Some companies match your contributions. For instance if you put a dollar in the 401(k) your employer will put a dollar in as well effectively doubling your investment. Since the investment is in the stock market it can go up or down so be prepared for that however as long as you are investing for the long haul the goal is for your money to grow over the coming decades.
Now the drawbacks to the 401(k) is that you can’t touch the money until you are 59 and a half or you will be penalized heavily. Usually 10 percent up front and another 20 percentage from other taxes as well. So if you need the money in a short term or you don’t have an emergency fund it would probably be better to build that up first.
Now the 401(k) grows tax free! So you pay no taxes on the growth over time. However once you start to take money out at 59 and a half (if you do choose) that is when you pay taxes. There is a different tax rate on the withdrawal but to keep things simple I’ll just say you gotta pay those taxes then. Any other questions I’d be glad to answer!
Thank you so much for the information Chelsea.
Hi Chelsea! Would love a video talking more about Myth#6
Hey financial diet. Can you make a video on What your thoughts on crypto currency? And should your average Joe start investing in it? All your videos are very helpful! Keep it up!
I think I saw TFD say no to cryptocurrency. They didn't elaborate at all.
Marv Fig oh okay. I wonder why
Watch the video with Hank! :)
kendall chung ua-cam.com/video/uwukx6DGmW8/v-deo.html
It's not an investment. It's speculation.
Cover your other actual investments first. If you have a bunch of extra money to 'play' with, THEN you can gamble with crypto.
Now someone just needs to explain how to choose the right house to buy. So many people in the comment section are saying they are glad they haven't bought a house but that's not the point that was made in the video.
Thanks Chelsea. Very educational.
Love this video although some of it is specific to the USA. Shared it with some of my friends. Thanks for posting
I wish these issues were taught in school. I had no clue I didn't have a credit score when I was in my early 20's until I talked to a mortgage broker. My real estate agent taught me how to use a credit card to maintain a good credit score. This is something that I should have been taught in high school. They teach us a lot of subjects that we will rarely use in life, but not the basic life skills we need to maintain an adult life.
Financial Diet is the Alux we deserve!
great video thanks for breaking it down this was easy to understand.
Thank you so much for your videos. They really are very helpful. Keep up the good work!
do you outsource your video editing?
This is so informative. Very helpful for my strategy. Thx for helping me
Great videos as usual. I just want to tell you that i get a little bit anxious because you guys speak very fast (in my perspective). I wish the pacing of the videos was a wee slower, BUT, i know also that is a lot of content for some videos and you have to speed it up a notch in order to deliver everything in certain amount of time. I just get anxious with the headphones, as someone was rushing me to save my money lol. Cheers girls. x
I always rent and probably will, as I move around a lot and due to the nature of my job, settling down in one place only becomes an option after your 35+ years old.
Love TFD! Thank you as always for sharing with us and helping us learn.
I love your videos! I'm looking forward to more. I'm also looking forward to the book. Keep up the great work!!
Chelsea if you ever want a guest - pick me! Also I live in NYC too so super easy!
You’re the best Chelsea!!
haha my Dad used his retirement to get a brand new Harley Davidson, I feel so much pain.
Is a 401K the US equivalent of a private pension? I'm from the UK and that name is new to me.
Pretty much yes. 401k is equivalent to defined contribution pensions which almost everyone under 50 in the UK is stuck with.
Thanks! Currently trying to transfer mine to a different company but I'm not even sure I could even withdraw my pension - definitely a rule for the best!
roxyqueen2 no, you can't take the money out before age 55, but you can transfer your fund to another provider
I really have to disagree with the point of buying a home. I agree that buying a home and expecting a huge profit from when you bought the home, that probably won't be the case. The housing market is not great.
I will also say that my area may not be the Same as other areas, but from everywhere I have looked, mortgage payments are much less expensive than renting. In my experience a mortgage payment is half the price of renting including insurance. With that you do want to put some of that savings away each month for upkeep or if any appliances go out etc. So stick to the low end of what you have available to borrow.
In renting i was literally living paycheck to paycheck. My savings was a piggy bank of quarters which usually went to transportation when I could not quite make it to the next paycheck.
Cutting our rent in half is allowing us to now put money into savings. On top of that, 5 to 10 years down the road we will have a substantial down payment if we wanted to sell and move into something else.
In renting its a gamble of if you are even going to get your deposit back. All that money each month has gone into someone else's pocket. Whereas owning only the interest goes to the bank.
This thing with credit score sounds so wierd. I don't think we even have something like that in sweden :/
I need the book like right now! Caaarnt wait
Duy Toàn Buy The Intelligent Investor. The Bible on investing from Benjamin Graham, Warren Buffet's mentor. Much better information.
taoist40 thank you. I will check them out right now