Invest or Pay off Student Loans - Expert Edition Episode 13

Joined with our Expert CFP Dr. Jay, we tackle a listener question. Should they focus on paying off their student loans or increase investments in their employer sponsored retirement  plan. We discuss employer matches, when to invest vs focus on debt payoff, and what to expect with federal student loans over the next few months.

Resource Mentioned:
Advice Only Network


About our expert:

Dr. Jay Zigmont, CFP®, and his wife are Childfree and live in Water Valley, MS. He has a Ph.D. in Adult Learning from the University of Connecticut and is a CERTIFIED FINANCIAL PLANNER™ and Childfree Wealth Specialist. He is the founder of Childfree Wealth, a life and financial planning firm specializing in helping Childfree Individuals and the author of “Portraits of Childfree Wealth”.

He has been featured in Fortune, Forbes, MarketWatch, Wall Street Journal, New York Times, Business Insider, CNBC, and many other publications.

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TRANSCRIPT:

[00:00:00] Naseema Mcelroy: What's up? What's up? So happy to be back stateside. So happy to be back with Dr. J. Hey, Dr. J. , you know,

[00:00:10] Dr. Jay Zigmont: you get to do all this traveling and I'm like stuck in my house. I mean, I

[00:00:14] Naseema Mcelroy: know , you know what, it was quite an adventure. But South Africa was so beautiful. I'm so glad. I got to experience it and it was like, the only comparison I have, like on the Africa side was like West Africa and South Africa, and the differences are really, really crazy.

But I was in West Africa like 20 years ago. So I'm sure that has a lot to do with the differences, but like still apartheid and just like all these other kind of things. But South Africa is a beautiful country. It reminds me of California in a way how geographically diverse it is. Like how you can go like from the mountains to the beach.

And so it, it was a really nice, and I spent some time in both Johannesburg and Cape Town and. Really did a whole lot of, nothing besides sighting. So it was a good break for me. So you should be a little bit jealous or not a lot .

[00:01:06] Dr. Jay Zigmont: No, I, I'm like, I, I, my wife and I went away for a cruise over Christmas and New Year back with Covid.

So, you know, like you, you to travel and have good times and I come back. Like, what the heck? This is just the wrong

[00:01:18] Naseema Mcelroy: combo. And you know what's so sad is that me, you being the immunocompromised one over here and then me working in the hospitals have never had covid, or at least I've never been sick. So I don't know if I've ever had it.

So I think it's a irony Is there? But I'm sorry, I was jealous of your cruise until you told me about the Covid thing.

[00:01:41] Dr. Jay Zigmont: Well you know, I, I don't know. You and I just need to figure out better trips. You, well, let's just trade, you know, , obviously you're picking better than I am.

[00:01:49] Naseema Mcelroy: Well, I think I'll have just one more trip in the book and that's going to Cincinnati, which is Cincinnati for economy.

I don't know if you've heard of it or been, but Economy is an incredible conference. So for these personal finance nerds, kind of like the fire talks of personal finance. And so I love that conference as a speaker last year. So that'll be my ga, my good grand finale trip before I'm bedridden, for lack of a better word,

[00:02:20] Dr. Jay Zigmont: Yeah. I've got a couple conferences planned too, but it's like conferences are not the same. Like, no, no. Like, I mean, that's work. You know, and I always come back in conferences and need like two days to rest after. Yeah. Like I, I'm not a people person. I'm like, I'm an introvert by nature. And like the conference is too many

[00:02:34] Naseema Mcelroy: people just, it is, it's, I, I, I'm an extrovert and it's too stimulating for me too.

Like I have to take good naps in the middle of the day for our conference because it is a lot of interactions. So,

[00:02:46] Dr. Jay Zigmont: yeah, I get that the people are like, oh, let's go out. And I'm like, yeah, I've had enough. Like , I had dinner, like saw you people. I spend the whole day like, I'm gonna go just climb into my hotel room and not come out till tomorrow morning.

[00:02:58] Naseema Mcelroy: a hundred percent. Feel you. That's kind of where I'm at right now. That's, I, I leaned heavily into that in my last trip. So. Well, we do have a listener question this week, and we'll kind of break this down into parts. Of course I don't have it pulled up. that would mean I was prepared. Which . Oh, that's laughable.

But so I'm gonna kind of read the question and then we can you know, answer it and discuss the different points of it. But I think it's a very interesting question and something that applies to a lot of people. So our listener is asking, what would you do if you were just beginning to match a 4 0 3 B?

4 57 deferred comp, targeted and invested in tar age target based funds basically. And you had $30,000 in student loans at a 5% interest rate. Would you pay off your loans first or. Try to meet the match. They're already at 6%, but they wanna go to 10%. They're also working for a P S L F qualified organization, and all the paperwork has been turned in as of October 31st last year.

So this is basically that question of paying off debt versus investing using P S L F, public service loan forgiveness. So what say you, Dr. J, how would you approach

[00:04:26] Dr. Jay Zigmont: this? So, you and I had a big debate about paying off your, your debt versus investing, and we may end up in a different place on this one.

And this is kind of interesting. So, Give, give people just kind of a context thing. So it's February of 2023. It is a week before the student loans go to Supreme Court. And if anyone asks like, what's gonna happen with student loans, I have no clue. Like seriously, anyone that seems to know is got a better crystal ball than I do.

So the public service loan forgiveness, and I'm gonna have to get political for a second here and I, not intentional, but it crossed over to finance. The last presidential administration approved nobody on public service law, forgiveness. , this administration's approving pretty much everybody. I mean, October 31st deadline was for the extended program.

Mm-hmm. . So I'm assuming that they had some extra time. Now, if you have extra time, you're actually getting credit for the Covid time. And also any other time you're making payments. So you're working towards that 10 years, 120 payments, you might be farther along. Yeah. Now let me ask you the question. Who's gonna be the president in.

The next term,

[00:05:43] Naseema Mcelroy: we do not know. Hopefully it's not Trump .

[00:05:47] Dr. Jay Zigmont: I'm not even going that far. I'm just going kinda like ,

[00:05:51] Naseema Mcelroy: like who's to know? Yes.

[00:05:53] Dr. Jay Zigmont: So the problem with the public service loan forgiveness is you're taking a bet on who's gonna be in charge. At a certain time. Mm-hmm. , so I met with somebody the other day who just brand new nurse, just starting a public services loan forgiveness, and I'm like, I have no clue if the program will be around in 10 years.

Mm-hmm. , nevermind who's gonna approve or who's gonna be in charge in 10 years. Mm-hmm. . . So I, I, I really don't like taking a bet on my forgiveness on politics.

[00:06:25] Naseema Mcelroy: What do you think? Right? At the same time though, I would say it depends because I do know people who have been nurses or worked in public service for the last 20 years.

Like the people my age that kind of went through nursing school around the same time as I have. So I've been a nurse for 13 years and I'm seeing them get in 200,000, $130,000, like wiped off the books in the last couple of months. And so I'm just like, I don't know, like I wish I was in their shoes.

But the thing is, is that that's not something that they depended on. That's not something that a lot of people even knew was possible. And it kind of is just like something that. , okay. Everything kind of aligned in the right way to work for them. Then there's Covid and all this stuff that extended the program out to be able to qualify more people.

And so it's, it is one of those things, it's kind of like gambling cuz it's unpredictable. , right? So I get it, but I'm just like, man, these stories that I'm hearing of people getting so much, so much of their loans forgiven, I'm just like, oh my God. That's amazing.

[00:07:36] Dr. Jay Zigmont: Yep. So let's go into this example. So we got $30,000 in loans.

Mm-hmm. . My first question is, well, do you qualify for Pell Grants when you got your loans? because then potentially you could get up $20,000 forgiven if the Supreme Court case goes in the right place. Right now, by the way, if you get $20,000 forgiven and you have $10,000 left, I'd be like, pay off that loan and just call a day.

That's it. Like, just, yeah, just like there's no debate on that. Right. You know, I that, that makes it easy. Unless you're telling me like, Hey, like three payments left to get public service loan, forgive us. You know, something like that.

So when it comes to public service loan forgiveness, the other option is this new repay program. Now this is getting kind of weird. All the details aren't out there. So in theory, in August-ish or fall-ish, the Department of Education is gonna come with this new repay program, which is gonna cap payments at 5% of your discretionary income.

And it, there's like some weirdness in there, like depending on how much you make and whether you went to community college, all that, but 5%. But what's more important is they're gonna cover the interest. So your loans stop, grow. Now that is a good argument for P S L F. Now I pay 5%. By the way, if you're in a couple, you might wanna consider filing taxes singly, depending on if that's gonna help you or not, because now you're going off of one income versus two.

So 5% they pay the interest. I can keep this loan around for 10 years at the 10% and they didn't pay the interest. You know, like I could be stuck with. . If you ask me the question in August, I'd probably give you a different answer than today.

[00:09:15] Naseema Mcelroy: Yeah, it's a whole lot of, it depends here. . Yes. There's so much stuff in limbo.

Yeah.

[00:09:23] Dr. Jay Zigmont: Yeah. So I, I think to make it easy, if you get the 20 grand, pay those loan off. If you get to 10, well, , it's a debate, and if you don't get no money, you know, we all get. probably run the PS L F, seeing how many payments you have left. The other part of that is though you're gonna have to apply for the new repay program when those details come out.

And the Department of Education has said, we're coming out with them at some point and no guidance. Like when, how, where. Or anything along those lines.

[00:09:52] Naseema Mcelroy: Can I just emphasize how much of a mess, like this whole process has been like getting erroneous emails, like opening up a program, being like Psych, we gotta go to the Supreme Court first, like, I feel bad for people with student loans.

I mean, I love the, I love it for the people who are getting forgiven, but like this is kind of like not a great place to be in if you're considering like debt is already this kind of contentious thing and this thing that carries so much of a burden in your life and now you're like going back and forth with the government.

It's kind of a hard, a difficult place to be in when you have loans. So I don't envy those people. I feel the struggle. I understand that struggle cause I've been there. But I wanted to ask like, do you have a general rule of thumb where it comes to paying off debt versus investing as far as like the percentage of the debt to your income now?

I think this person is a nurse. And so if you're making like $200,000 and you have, I'm saying only because $30,000 is a lot of money, but I'm saying only in the world of two loans because , when you compare them to like my almost $200,000 and student loan debt, $30,000 seems nominal, especially because of how much you can earn as a nurse.

Would you just say like, in, in certain situations just pay it off, like stop playing around, like just get rid of it. Like add a certain income threshold to your debt to your income ratio.

[00:11:28] Dr. Jay Zigmont: Yeah. I'm one of those no debt people, so I just say, pay it off.

I don't care what your debt or your income is or whatever, you know, 30 grand, by the way. You're right. It's a lot of money. Some people, it's not a lot of debt. Like I have people come to me yet. I got a lot of debt, got 30 grand. I'm like, you didn't break six figures. Okay. You know, like. In the US six figures is where I start going.

That's a lot of debt, right? Which by the way, right, that's a sad discussion. That's a separate, you know, economic discussion. But what happens is, look at it this way, that loan is 5% interest. So if you pay it off, you get a 5% guaranteed risk-free, tax-free return. So let's say you are in California, like Seema, this, and your tax rate, your financial tax rate is 30 something percent because that's, I'm willing to bet most people in tax, you know, want you to figure your state and all that.

You'd have to make essentially 30% more than 5% see you from making six and a half percent to even make sense to invest. And by the way, the match is free money, so that's a se, a separate discussion, but you'd have to make a giant amount. The stock market on average returns somewhere seven to 10%, and there's alternate ways of measuring that, but that we have to pay tax stock.

Yeah, so 5% guaranted return. If I could put all of my money into something that's gonna be 5% for the rest of my life, never lower, never higher, and no taxes on it, I would do that. Well then paying off the debt is the right. . Now the P S L F is that one little twist of like, well, if you can go just away for free, well then that's free money.

And, and I think that's the hard part is people go, well, I've always had these student loans. I'll always have 'em around. No, you don't have to always keep 'em. You can pay 'em off like it doesn't work.

[00:13:06] Naseema Mcelroy: Right for, for this situation, for this person, if they qualify for pce, P S L F, their loans are currently in deferment right now, so they don't have to make payments.

They are getting a match at their company, which I think they're asking to increase their match increase how much they contribute over the match. And you know, there's all these things going on with repay, with the student loan, with the courts and all of that stuff, like over the next couple of months, what would you advise them to, to

[00:13:36] Dr. Jay Zigmont: do?

So if they're gonna end up paying it off the. You know, cause let's say they're hoping it gets 10 or 20, I'd have to take the extra cash and put in a high yield savings. And then once we finally have payments again, just write a big old check and Yeah. You know, take a chunk out of it. Yeah. Now let's go to the other side and say like, they've decided Yep.

They're gonna go public service loan forgiveness. They only have another year of payments. Cool. Let's talk about upping their 4 0 3 4 57. Now, little technicality for people, if you hear 401k, that's usually a for-profit. 4 0 3. BK is usually nonprofit, state government, something like that. And then 4 57 B is a special kind of option for nonprofits.

State some, some educational institutes. 4 57 B is a deferred compensation. So what that is, Is, it works kind of like a 401k but with a twist. So if you have a choice, you have both a 4 0 3 B and a 4 57. You actually may be better off putting it in your 4 57 and lemme explain why. Assuming they have the same investment, which usually like one place has the same investment for both accounts.

The 4 57 BK is the fard comp and you can get it the day you quit that. , you don't have to wait till 59 and a half, like a 4 0 3 B or four . So that is a bonus. Now, by the way, keep it in there too, but like if I wanna retire at 45, well I can pull money outta my 4 57 and just use it. So it is one of those things and if you have an option of 4 0 3 B and a 4 57, you can actually max out.

So you put like me 2022 20, sorry, 2023. You put 22,500 into each and just you, you, you're growing. And depending on the company, they may have both a Roth and traditional option. So you may be able to like mix and match and make your taxes work to get there. Now one of the kind of weird. I usually will default to Roth unless you have to bring down your income for some reason.

Well, if you're public service loan, forgivers and repay, it may make sense to do traditional and bring your tax, your taxable income down. Brings your payment down. It's a game, you

[00:15:42] Naseema Mcelroy: know, like, and, and there's, so yeah, it's a game level. It's definitely a game. And there's, yeah, like you were saying, it's levels.

But like as a nurse in California that owns also, that earns over a certain amount of money, my incentive is to bring my taxable income down because the state taxes are so high. Federal taxes, all of that stuff. So when I do that, I end up paying way low below the federal level. And, you know, I'm saving a lot and yes, I have access to the 4 57, so I'm using that as kind of like my early retirement or my mini retirement tool so that when I separate from my company, yes, I will pay taxes on that money.

However, if I'm in a year where I'm in a minute retirement and I'm not drawing down any money from, or. Earning any money, I'm sorry, from my jobs, my tax rate is gonna be no you know, nominal, it's gonna be pretty small. So that's one of the things that I'm using and a lot of people don't know that there's that option.

Just like they, people can draw from their Roth IRAs early and they don't know that that's an option and it's not. And I'm not talking about like kind of just like pillaging from your retirement accounts. I'm talking about strategic ways to get money out of your accounts when before you return, before you turn retirement.

A strategically, because best believe most of my money is going to be in my accounts where I can draw from in retirement so that I do have a good amount of money in retirement, but I do. Max out these other options so that I have money available to me pre-retirement.

[00:17:23] Dr. Jay Zigmont: And, and, and I'm gonna challenge you again just cuz it's fun.

Yes. And we're gonna shift from the reader comments to you. Yes. And, and so, okay, you max out the 4 57. You max out the 4 0 3 B. Are you putting more into your like, tax bill brokerage account right now? ,

[00:17:39] Naseema Mcelroy: my taxable brokerage account. I don't put much in I, because I usually invest for my kids outside of that.

Okay.

[00:17:45] Dr. Jay Zigmont: Yeah. So if you're gonna, by the way, put it in 5 29 is a great way. And there's also tax breaks for that too. Mm-hmm. , if you're gonna be putting it in your taxable brokerage, it's actually an argument for using Roth. because I can actually pay the taxes now, effectively put more into my retirement rather than putting in a taxable account.

So what happens is, yes, I'm gonna pay 'em in California, I'm gonna pay a whole lot of taxes in federal and all the other, I'm not gonna get the break. But what happens if I put it in my taxable? I've gotta pay taxes on it as it grows and all the other, I can actually lock in more into my Roth into retirement by putting 22,500 that I pay the taxes now the same, effective as if I put like an extra.

35% into my retirement. Hmm. Cause it's gonna grow tax free

[00:18:28] Naseema Mcelroy: forever, you're saying? So to do it as a Roth 4 0 3 B. Mm-hmm. , like, put more into my Roth 4 0 3 B because I can contribute so much more and then that can roll into a Roth and then I'll have so much more.

[00:18:40] Dr. Jay Zigmont: Well, it grows. Yeah. Uhhuh, , you know, so yeah, it, it, it's one of those weird ones, the 5 29 for the kids. Great way to do that. You know, up to whatever. Some states, by the way, don't give tax breaks on that or not. So each I like California. Yeah, California, like I just assumed they tax everything. Like I saw somebody the other day, like I was working with someone on disability and like they actually didn't tax it.

I was like, how is that California didn't tax that like, That that's where they tax everything. Yeah, too much. What happens is the 4 0 3 B and 4 57, if you can do Roth, you're not limited like the Roth IRA to the income and have to do the backdoor Roth and all that. What you find is people that have high incomes, you know, like 200, 300, you know, six figures plus are putting their money in the Roth even though they're paying taxes cause it grows tax free forever.

And I can effectively put the extra that I would've been taxed on into there and it's growing on, its. The other one and, and just kind of walk this through. And the same goes to the, to the person I emailed in. If you have access to hsa, that's an even better benefit. I wish. So Max out the hsa, first

You're currently, you got medical issues. You don't wanna be taking a high deductible program. Alright,

[00:19:49] Naseema Mcelroy: well definitely not. Yeah, exactly. With my situ. But like any other time when I'm perfectly healthy, Oh, but believe, best believe I'm racking up a lot of bills that I could use in a hsa.

.

[00:20:03] Dr. Jay Zigmont: Yep. I, I think it, it's a priority question. So if you have an hsa, that one gets filled first because you get a tax deduction when it goes in. It grows tax free and comes out tax free for medical. So you get the triple. If that's not the case, then we can go to the 4 57, 4 0 3 , whatever works best for you in your life.

[00:20:24] Naseema Mcelroy: Yeah, but only this year, by the way, Dr. James, we'll have all this craziness going on any other year. I really go to the Doctor . Well,

[00:20:33] Dr. Jay Zigmont: so people that have kids you've never heard. Yeah, yeah. I'm going, you really can't get away with a high deductible plan because kids, you, it just happens. Stuff happens. You know, and, and the way I usually ask people when they're picking their healthcare plans, I go, are you lucky?

And I go, no. I'm like, well, then you can't take the high deductible plan like . And that's not scientific. It's just if you pick the high deductible plan, you're gonna end up running medical bills. , if you, if you're not lucky. and there's some research that says people don't get medical care. If they have the high deductible plan, really they avoid it.

That's part of the reason

[00:21:08] Naseema Mcelroy: why. Oh, I see what you're saying. Oh, okay. Yeah, they kind. Okay. I get it. Well, it's not an option for me but I'm actually blessed to have a really good. P p o plan that I pay like $19 or a paycheck to cover my family of three, almost gonna be four. So, , I'm not mad at it, even though I love the benefits of a hsa.

You know, you have to weigh those

[00:21:35] Dr. Jay Zigmont: things. You, you know, there's some people out there hating on you for having a $19 healthcare. All day. Like I've seen some family plans. It's thousands of dollars a month, you know, and you're like, my plan over here is $19. Seriously. .

[00:21:48] Naseema Mcelroy: I yeah, like when I switched to my partner's plan when I was pregnant with her, that was it.

It was like $1,800 and it wasn't the level, it was like a Medicare plan. It was horrible. I was like, What is this ghetto? This like, let me go back to work and get my benefits. Like I have never experienced that. And I think like that's one of the things of being like a nurse and being in healthcare is that we typically have pretty good plans attached to if you work in a hospital setting, at least from my experience we have really good plans.

I mean, $19 is a lot cuz I used to pay zero for a family plan or $5. Like something crazy like that.

[00:22:29] Dr. Jay Zigmont: Okay. You're not allowed to complain about that , but you, you, you're right. And that's also why a lot of people are like, oh, I'm gonna work part-time for the benefits. You know? Cause a lot of nurses can work 24 hours and get healthcare on the way by and save themselves a giant amount in comparison to other plans out there.

And then they go, oh, well my plan is terrible. And I'm like, listen, your plan is phenomenal. You know, shush. Like, don't complain about this. Like, well, they upped the premium from $5 to 19. Stop, bless .

[00:22:58] Naseema Mcelroy: People just don't understand the world out in there and how ghetto it is in these health insurance streets.

It's not for the faint of heart

So for, for this person. I just wanna make sure we cover, like, when we talk about the match, because a lot of people sometimes don't understand how matches work. And I just wanna make sure we address that. Like investing up to the company match. What does that mean? And do we stop that to, to pay down debt or like, what's your typical advice for

[00:23:33] Dr. Jay Zigmont: that?

So if you follow the Dave Ramsey world, he says, stop it and just pay down your debt. And, and, and I get where he is coming from and I can, I can see the argument now. My first question is, are you going to be there long enough to get the match? So what people don't think about, so how matched user works?

Let, let's, let's use an example. So I put in 6% as the employee. My employer puts in half of that, so they get 3%. So essentially I get 50% extra on my money, but usually you gotta be there three years before. That vests, which means you get to keep it. Now, I often talk to people, I'm like, are you gonna be at that job three years?

They're like, no, I'm moving in two years. Well, then the vest doesn't matter or the match doesn't matter. And, and I think what happens is the average. I saw some status on like the average tenure at a job. Something like two and a half years. 2.2 years, something like that. Well, at that point you're throwing away your match and I think

[00:24:32] Naseema Mcelroy: a lot of people, a lot of companies are actually moving the vesting time out.

To like five years. That's on average that I've seen. Some, some companies immediately vest, I think my hospital immediately vest. But then I think, you know, the retirement accounts are expensive. So I think people are moving that number out.

[00:24:51] Dr. Jay Zigmont: Yeah. And I've actually, because of the layoffs view, others, some companies are starting to stop their match.

Yeah. So like, just like, Hey, we're broke. Instead of laying on people off, we're just gonna not do a match this year. Which by the way, and I, I believe half the time, it's just them using an excuse to not give you the extra money. But, you know.

[00:25:10] Naseema Mcelroy: True. But then I also see people that will choose not to invest because there's no match.

[00:25:18] Dr. Jay Zigmont: Right. And, and here's the thing. So your 401k, the money you put in that, into the employees part is yours. And, and you can put 22,500 people go, well, I maxed out my ira. I'm like, yeah, that's great. That's 6,500 bucks. You can do that too. That's a separate question, but you can max up the, the 401k Also, for those people who are self-employed, you can actually create a self-employed 401k, a solo 401k, and you can actually put both the employee and the employer component.

So when this person's talking about the match, my thing is, all right, you're gonna be, there's, cause if they're talking about public service loan forgiveness, they're working a state job that tells me they're, they're not going anywhere anytime soon. Like, just kind of how that works. But if they said, Hey, I'm planning to move states next year, well then let's put it towards the debt.

Yeah. So that's where that argument comes in. Also when it gets to like credit card debt at 20 or 30% apr, you might just wanna not do the match and just put all your money towards that debt because Yeah, that's

[00:26:20] Naseema Mcelroy: crazy that

[00:26:21] Dr. Jay Zigmont: it's, it's. You know, I mean, some states now, like they have caps of like 28 or 29%, something like that.

Still

[00:26:28] Naseema Mcelroy: the high, anybody that's over 5% is gonna be insane. And so when you go up to double digits in interest rate, do you realize how much interest you're giving people? I. I have a two I, I looked at my mortgage statement the other day and my interest rate is 2.8% and I was still blown away at how much interest I pay.

And now you're looking at people with like, the 6% interest rates are like $700,000 mortgages. And I'm just like, house way, like, make this make sense.

[00:27:05] Dr. Jay Zigmont: Okay. Pause for a second. Yeah. Do the math for me on a second. So if you said, So right now 6% mortgage rates are kind of average on a $700,000 house. How much interest per year does that mean you're paying?

Have you done that math?

[00:27:20] Naseema Mcelroy: No, I don't do that math cuz it gives me a headache. I, I'd use a mortgage calculator and I, and actually I did do it cause I have a post about it. So

[00:27:30] Dr. Jay Zigmont: it's $42,000 a year in interest in interest. .

[00:27:36] Naseema Mcelroy: Mm-hmm. . And then another $20,000 in property tax. , hold on.

[00:27:41] Dr. Jay Zigmont: Hold, hold on. $42,000 a year in interest when the average household is making something like 60 grand a year.

Now, by the way, that's a weird California real estate thing, but I mean, you're talking about you have to work a full-time job just to pay the interest and, and I've actually been having this debate with people be like, well, should I buy or should I rent? And I'm like, oh, rent Thing's looking a lot better right this second.

And people go, well, but then I'm paying a landlord. Yeah, but you're not paying $42,000 a year in interest.

[00:28:09] Naseema Mcelroy: That's what people don't understand and I'm not knocking people who wanna buy properties. So I, I think I have to always put that disclaimer out there cause people think I, I hate property owners where I've owned like seven, eight houses now, you know, since I was 21.

Okay. So I know the game. You are still, no matter what, paying for a place to live. The goal when you're paying for a place to live, because it usually takes up so much of your income, is to minimize that expense as much as possible, regardless as if, if you rent or if you own. Now, if you get a place and you're able to.

pay a mortgage plus the interest, and it is still very minimal. Okay? You have a justification to buy. But so many people are willing to be house poor just for the sake of saying that they own something and not doing the math and not understanding how much they're actually paying. And we just talked about interest.

We didn't, I threw in the property tax thing, but that's not even calculating the property tax. That's not even calculating the maintenance cost. That's not even calculating, you know, the what is it called? The The down payment that you have to put down and the opportunity cost associated with that.

Like, I mean, people don't wanna do the math, but when I tell 'em that I'm a hater, so,

[00:29:43] Dr. Jay Zigmont: you know, we're, we're gonna, we're gonna have to do a separate episode on buy versus rent and yeah. So I work with child free folks and they're much more mobile, you know, they're kind of nomadic a bit more mm-hmm. and I'm like, rent.

And they're like, but I was always told I need to, and I'm like, that's. We can get you access to real estate through like a real estate investor trust. You can get invested in it without having to deal with it. Like, well, but I could rent it out. Yeah, but now you like a remote landlord and you know, the hot water heater breaks and like, forget it.

My, my wife and I, we own our place, but that's, The amount of work we have to do with it is crazy. Mm-hmm. . So, I dunno, we'll have to come back to that. Cause we could go a whole, like that's a whole episode on its own of just saying red versus own. And we can just get yelled at for that

[00:30:24] Naseema Mcelroy: one. we, I don't mind getting yelled at because I think people need to kind of like wake up.

Seriously. So we talked about the match and let's just kind of like do a recap of the situation. So basically this person is asking whether they should be Increasing their investment in their 4 0 3 or in 4 57 versus paying down $30,000 in student loans and they qualify for P S L F.

So to summarize, like the recommendation for them, what, say you,

[00:30:56] Dr. Jay Zigmont: Dr. J? So knowing nothing else in there, I'd say put the extra money on high yield savings until they figure out what's going on with student loans. Like seriously? Mm-hmm. until, until they know how many payments they have. The, the, all the, the Supreme Court ask the question.

It it is, when you shake the IT ball says, ask the question again later, you know, like, that's kinda where you're at. But make sure you're putting the money away in savings and not spending it cause mm-hmm. extra money hanging around since the disappear, you disappear. Mm-hmm. . So I would do that and then once we have a final answer on what's going on with student, then I would either follow the PS L F and do the repay or just pay it off depending on, you know, if you, if you get the 20 grand pay, you know, we got 10 grand left, pay it off and get rid of it.

It's not a pet. You don't wanna keep it

[00:31:41] Naseema Mcelroy: around. Right. , I love that advice. I think that's great advice. So I hope you guys could benefit from that. I think this has been a great episode. We covered so many different things within just this question, but it brings up a whole lot of things my general kind of feeling around this is, this is a little bit more convoluted question, and if I was that person, I would go to a C F P to kind of break down the numbers and scenarios.

And we don't have all the information. We don't know how much this person is making, so I would recommend, you know, talking to someone schedule an appointment with a fee only fiduciary advisor, just like Dr. Jay. And Optimize the situation for you because this is not something that typically falls under blanket advice.

Just like most personal finance things, it's pretty personal. But I think in this specific situation with the kind of environment around the student loans right now, because there's so much changing, you might even wanna consult a student loan professional as. , which you can kind of get both in A C F P also.

But , I would say reach out to somebody and get a little bit more help and clarity so that you can make the right decision for you.

[00:32:55] Dr. Jay Zigmont: Yeah, and I'm gonna put a shameless plug in here for a website. It's called Advice only network.com. It's actually a group of financial planners, all fee only, but they're also called advice.

you just pay 'em for an hour of their time or whatever it is, and you can just get some answers. I, I freely admit, I'm one, I'm on there. So it's not, it, it is a shameless plug, but it's a different way of doing it. Cause it, this is not an investing question. This is kinda bigger financial planning questions.

I will tell you though, if you ask three CFPs what to do about it, you'll probably get three different answers because it depends on the crystal ball around student loans. If you ask me like in August when all the plans are in place, this is an easy question asking in February, like the week before the Supreme Court case, and I have no clue.

At least I'm a little.

[00:33:38] Naseema Mcelroy: And thank you for that because I think there's a lot of times when we just need to simply throw up our hands and say, we don't know. And it's a little bit easier to wait, but to create a, you know, an action plan around waiting, like putting your money in a high yield savings. So I definitely appreciate that answer.

But it's still brought up. Really, really good talking points that people need to just think about when it comes to their finances. So again, always a pleasure. Pleasure, Dr. Jay. I love going back and forth with you. I love when you try to , rattle me, try to

[00:34:12] Dr. Jay Zigmont: have a discussion. I mean, you, this podcast a boring.

[00:34:16] Naseema Mcelroy: I love it. I love it. I love when you shake things up because people need to hear you know, different opinions and different approaches. And I don't wanna be dogmatic because that's not how personal finance works. And I think that's what I want people to get out of this the most is that it's not a dogmatic thing.

It's not something that, you know, we just have one solution for. It always kind of just depends. And so, I thank you and I appreciate you being here as usual, and I'll see you on the next episode.

Hey there I’m Naseema

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