Critical Thinking Required

For part II of the episode, Dan and Kennidy discussed how to manage your financial routine as a couple/partner.  Do you join finances?  Do you consolidate debts?  How do you define the roles of finances?  Is one of you taking the lead?  Do you value your partners' non-monetary contributions?  How to effectively discuss financial goals such as college planning, retirement, inheritance, charitable giving, estate planning, etc.?  How do you navigate conflict and what happens when your income changes significantly?  As much as we don't want to admit it, finance can often make or break a relationship.  Consistent communication is always a key component.  Talk finance to your partner!

This is part I of the episode where we discuss how can a couple/partners talk about finances.  A survey showed that 41% of divorced Gen Xers and 29% of Boomers say they ended their marriage due to disagreements about money. Talking about money is important for any couple, whether you are dating, are domestic partners, or are married.  “Even at the dating phase?” you ask.  Yes!  Money means different things to different people.  It may be about security, reward, ability, a means to an end, or to a lot of first-generational wealth: empowerment.  So it’s a good idea to ask yourself and then your date, what does money mean to you?  That answer may significantly impact your dating pool.  Second phase: now you are in a steady relationship, you need to build a routine together: Do you want to join finances?; Should you have prenuptial conversations?; How do you feel about gifting/charity?  As we always say, it’s better to have these awkward but critical discussions when everything is good.  For part II of the episode, we are going to talk about the third phase: managing your finance routine as a couple.

There's increasing discussion about Central Bank Digital Currency (CBDC) - don't confuse it with Bitcoin or other cryptocurrencies.  CBDC is not a new crypto.  It's still US dollars released by the Federal Reserve, just in the digital format.  The benefits are clear: more efficient and low-cost; faster access to assets and financial systems; it can also continue to strengthen USD as a global currency.  However, the drawbacks and risks may also be potentially astronomical if not planned carefully: cybersecurity risks to not only your savings but the stock market, investments, banking, etc.; how can people get access if they live remotely?; privacy concerns for citizens from the government, etc.  Overall, with blockchain and other technologies, some type of digital currency is coming, one way or another.  It will be very interesting to see how will the Federal Reserve sets it all up!

Because the U.S. has been running on a deficit (less tax revenue than the total spending) for the last few decades (with a few exceptions), we have a debt problem.  The U.S. national debt hit $31.51 trillion as of Jan. 26. 2023.  Our current debt ceiling is $31.4 trillion.  What happens then?  Nathaniel and Tim discussed how Congress can increase the debt ceiling (once again), how the dollar being a global reserve currency plays an important role in our national debt issue, and what happens if the country defaults on its debt.  Overall, the odds of default are unlikely now.  But for the long term, it's definitely something that we should keep a pulse on, for the consenquences will be catastrophic.

Why is it important to talk about finance in the family?  Because money is not just about money.  It’s particularly hard to discuss finance with your aging parents/loved ones because it makes them feel vulnerable.  In addition, you can be 60 years old, but your 88-year-old father still views you as a child.  Some important topics you should cover with your parents: estate planning (parents, please don’t leave the terrible burden “should we pull dad’s tube?” to your kids.  Have a Living Will!), inheritance, college planning, business succession, etc.  Dan offered some tips: do it together as a family, don’t play telephone between the siblings; be sensitive, be patient and be calm; make it a routine because things may change and evolve; and last but not least, communicate, communicate and communicate!  It's the crucial ingredient in all relationships. 

How's the first week of your 2023 so far?  Dan and Tim discussed the 2023 new year's resolutions for personal finance.  First, before you start creating your list, take a step back, and think about two questions: what does money mean to you?  What does enough mean to you?  Some great financial resolutions are: get your taxes done earlier; plan your medical/specialty visit earlier; adjust account allocations if needed for 401k, 529, stock option/RSUs, etc.; make contributions to your retirement accounts: Roth, back-door Roth, conversion, 401k, etc.; understand SECURE Act 2.0 which may greatly impact your retirement savings; think about making gifting/charity donations earlier; income planning and how to allocate it.  Overall, the most important thing is to set realistic and achievable goals so that you can create a positive feedback loop within your personal finances.  What are your new year's resolutions?

There are some investment vehicles that allow you to save and invest for retirement with tremendous tax benefits: 401(k)s, IRAs, Roth IRAs, etc.  Basically, traditional IRAs allow you to take the tax deductions today, but you will have to pay income taxes in the future when you take out distributions; meanwhile, Roth IRAs make you pay your taxes now, and grow tax-free for the rest of your life.  Nathaniel and Tim discussed the power of compounding and how you may benefit from long-term planning and investment strategy.  Remember, Social Security was never meant to cover all of your retirement expenses, and retirement account contributions are critical to almost everyone.  Discuss with your advisor and see if you should put more towards them.

A Roth conversion refers to taking all or part of the balance of an existing traditional IRA (or 401(k), 403(b), 457(b), etc.) and moving it into a Roth IRA.  The point is to pay the tax now so that the assets can grow tax-free for the rest of your life.  One of the myths we frequently hear from people refusing to do a Roth conversion is that: I will be in a lower tax bracket when I'm retired and I will pay my taxes then.  Dan and Tim discussed it and explained why this may or may not apply to you.  In addition, if you are lucky enough to have other assets for your retirement, you may also want to consider your children's earning potential to know if a Roth conversion makes sense when they inherit your assets.  Overall, as with most financial tools, there is no absolute good or bad, only if it suits your situation or not.  Talk to your advisor and see if a Roth conversion is beneficial to you!

In today’s market, where interest rates are high, but sellers still think they can get premium prices, people are often more hesitant to invest.  However, as legendary investor Warren Buffett once said, “be fearful when others are greedy, and greedy when others are fearful.”  There are always great deals if you understand the fundamental mechanics of the business and have a margin of safety.  As with any investment, the price you pay matters the most.  Plus, Jorjio also pointed out so insightfully, why sometimes the higher interest rates may be an advantage for the investor.  Tim asked about the potential risks and things you need to consider before investing in real estate.

We invited Jorjio from MLG Capital back to the podcast and discussed more on real estate investing.  How does real estate fit in people’s overall portfolio, compared with equities, fixed income, etc.?  How can we build our real estate portfolios from scratch?  Jorjio talked about the advantages and disadvantages of passive and active real estate investing.  Tim asked what should one consider when investing in real estate in today’s inflationary environment.  For next week, Jorjio is going to talk more about the current housing market: growing interest rates and yet still sky-high prices.