What Happens if I Stop Investing for a Year?

Transcript

On this episode of the Personal Finance Podcast, what happens if you stop investing for a year?

What's up everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're gonna be diving into your questions on this money Q&A. If you guys have any questions, make sure you join the Master Money newsletter by going to mastermoney.co/newsletter, and don't forget to follow us on Apple Podcast, Spotify, YouTube, or whatever podcast player you love listening to this podcast on.

And if you wanna help out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player. Now, before we dive into this Q&A, quick housekeeping. We are taking a small group of people in for one-on-one coaching. If you are interested in that, shoot me an email, andrew@mastermoney.co.

The only requirement is that you have to make over $100,000 per year in household income. But if you are interested, feel free to reach out, and we will hook you up with a team to get more information. All right. So in today's episode, we're gonna be going through six of your questions. We're also gonna be going through the scam of the week, uh, this week, which is very, very timely, which I think is gonna be really important for a lot of people to hear.

And we're gonna be talking first about asset location. So we talk about asset allocation on this show all the time, the mix of stocks and bonds you should have, but we're also gonna talk a little bit about asset location and where some of your assets should go. We're gonna be talking to a 21-year-old in New York City who has $30,000 in cash, and they are trying to think through how to budget, how to figure out liquidity.

We're talking to someone who has vested company stock, and if they should hold onto those shares, if they should sell those shares. We're gonna be going through when it's okay to pause retirement contributions and what happens and what is the impact for pausing those retirement contributions. And we're gonna talk about the seven streams of income and if that's something you should have or if that is a myth.

Plus, we're gonna go through should someone cash out their 401k to pay off credit cards. So this is an action-packed episode. I am really, really excited for this. Again, if you wanna send in your question, feel free to shoot me an email, and you may get your question answered on the, on this show just like this.

So if that's something you're into, let's get into it All right, the first question is from Josette. She said, "The one money problem I'm trying to solve right now is investing for the first time. My specific issue is understanding not just the asset allocation, which I pretty much grasp the concept that the S&P 500 is basically unbeatable, but more importantly, I'm trying to understand asset location.

I am a government employee with a pension, and I'm maxing out my 457plan, which is 100% invested in the T. Rowe Price Retirement 2055 Trust Class J. Not sure if I should be managing that myself or allowing it to choose the right investments for me. Now, as a government employee, I do not qualify for an HSA, so I am limited, I believe, to my backdoor Roth IRA and taxable brokerage accounts for retirement preparation.

However, I'm not sure how much Of which ETF/other investments belong in which account? I have heard that SCHD and SCHG are great, but have too many dividends for a taxable brokerage account. BND is good for balance and diversification, but also should not go in your taxable brokerage account. I just want to make sure I am investing in the smartest way that produces the largest retirement portfolio possible without costing me a ridiculous amount in taxes.

I also want to make sure that I am utilizing all of my retirement resources I have at my disposal. So this is a wonderful, wonderful question, Josette, and I think you thinking about this is really, really important, especially as you start to build out a portfolio, which I think based on how much you're investing currently, is probably gonna be pretty large.

So for many people out there listening, the 457, at the time I'm recording this, has a $24,500 per year yearly max. And if you're over the age of 50, you also have what is called a catch-up contribution at $8,000 per year. And if you're over the age of 60, there is now a super catch-up contribution that's $11,250 that you can also put in.

And just for reference, the IRA max out is gonna be $7,500 per year. Now, making sure that we use every single resource available to us when we do have extra income coming in during our highest income years is gonna be super, super important. And for Josette, she wants to make sure that she is getting as much as she possibly can into these accounts.

So one of the things that you could ask is can you stack a 403and a 401? So 457limits are separate, so you could defer $24,500 to each of these if you wanted to. But you wanna ask HR, "Hey, do we offer a 403or a 401, or even a 401besides the 457?" That is one of the options just to see if you can request. It is not very common yet, but it is something that can be offered from time to time.

Now, a couple of other things to think through is maybe a Roth 457, if you have that available, that could be a good option, or a mega backdoor Roth. Now, a mega backdoor Roth is unlikely for a 457, but if they do have 401or 401options, then that may allow you to do after-tax contributions, which would allow you to then transfer some of those to the Roth and be able to do a mega backdoor Roth if that is an option for you.

So it's worth looking into that as well. And if you have no HSA, a health FSA still leaves tax on known medical costs. You know, you could go look at thir- $3,400 per year right now at the time I'm recording this. That could be one of the things to do. Now- The backdoor Roth is a great option, and I think for many of us out there, this is the first thing I do every single year, is I make sure I max out my Roth IRA for myself and for my wife.

$7,500 per year is what you can get into these accounts, and I typically try to do this in January. If you are a high earner and you've already maxed out your, your Roth IRA or done a backdoor, start saving for the January contribution now so that then when January rolls around, which is only a couple of months away at the time of recording this, you have the money just there that you can already do that backdoor contribution.

I think that's really important. And so if you are someone who makes over $153,000 per year and you're single, or you make $242,000 or-- a year or more and you're joint, then you're gonna have to do a backdoor Roth IRA, meaning that you contribute money into a traditional IRA, then convert those dollars to a Roth IRA.

That's how high earners can get their money still into a Roth IRA, even though we do have these income limits. So it's just one of those things to note for anybody who has not heard that. Now, there is something called the pro rata rule that every person listening who does a backdoor Roth needs to understand, because all pre-tax IRA balances on December 31st make part of a conversion taxable.

And so you wanna understand the pro rata rule before you do this. The 457is in an IRA, so it doesn't count towards your pro rata rule. And if you file Form 8606 every year, that's really important to make sure that when you do the backdoor Roth, uh, everything is kosher. Now let's have a conversation, though, and I think you should continue to do the backdoor Roth, about asset location.

So SCHG, which you mentioned is a growth fund yielding about 0.4%, uh, and SCHD yields about 3.1 to 3.2%. So SCHD is the most popular dividend ETF in the country right now. SCHD is a cost-effective, meaning you can buy multiple shares of SCHD. It's like at $33 or $35 a share right now at the time I'm recording this, and it is something that is a very powerful fund if you are looking to live off dividends.

Now, why would someone be interested in this? Well, if you wanted to instead make sure that you are putting money into a portfolio and not having to draw down on that portfolio, but instead you want to live off the income it produces, that is when you would look at something like an SCHD, a dividend ETF that could be interesting.

Now, SCHD typically has 100 different dividend stocks inside of it, and it is a very low-cost dividend ETF as well. It is one that I looked at for years and years, and it is very powerful. We're about to do, actually do a YouTube video on it. Uh, so if you want a deep dive on that, please, uh, let me know. But when it comes to dividends, you know, a lot of people like to have dividends in Roths.

The reason why they like to have dividends in Roths is as your portfolio grows, and if you have a pretty large portfolio, it's gonna spit off a pretty decent amount of income. And when you're spitting off income inside of a Roth, what happens? Well, that money is completely tax-free. You don't have to pay a dime in taxes on the dividends inside of that portfolio.

So if your strategy is to have a dividend portfolio, having it inside of a Roth isn't a bad idea. Now, if you had it inside of a taxable account, is that the end of the world? No, it's not the end of the world because your taxable account income is still taxed at a significantly lower rate than your actual income.

So when money comes in on your taxable account, you still will have a much better situation than you would on your traditional income But SCHD is something like if I was gonna build a really big portfolio of SCHD, a good spot to consider would be your Roth just because that money would grow tax-free.

Now, SCHG that was mentioned is also a growth fund, but it's yielding a smaller percentage. But it is a growth fund, meaning you anticipate to have higher growth. So if you have some, like, low-growth things and then you have some high-growth things, the lo- the higher growth things you also wanna consider having inside of a Roth just because of that tax-free growth.

This is why getting more dollars in a Roth is really important, because you can have tax-free growth options when you're thinking about asset location, okay? Now, bonds are a little bit different. Bonds are taxed as ordinary income, okay? SCHD are usually taxed as qualified. They're taxed at lower rates because they're qualified, so you can have it in a taxable account and it's a tax drag, but it's not really a tax disaster.

If you wanted to do that in that route, you could. But since interest on bonds are, are taxes ordin- ordinary income, you could put them in, like, something like a 457, and your highest expected growth should always be considered as the Roth. The Roth should have the highest expected growth. And then in your taxable, like one of the things that I like to hold in my taxable is just broad-based, low-turnover index funds, things like the S&P 500, things like the Total Market Index Fund.

Those are the types of things that I like to hold inside of my, uh, taxable because it's tax efficient to hold those inside of a taxable. Now, SCHD and SCHD in an S&P 500 fund overlap heavily in large US stocks, so you wanna just make sure that you're looking at that when you're looking at your asset allocation.

And the S&P 500 is a great core holding and, uh, it's a core holding in a lot of different portfolios that I hold, in my kids' portfolios, in my wife's portfolios. There's a lot of different core holdings where I hold an S and- S&P 500 index fund, which can be, you know, really, really powerful. Now, one other thing to note is that the target date fund.

A target date fund can be a wonderful fund. It's not optimal for every single person, but it can be a wonderful fund that rebalances your portfolio and diversifies your portfolio without you having to lift a finger. So if your goal is just to, hey, I wanna go to work, I wanna come back and make sure that I am having an optimized portfolio, there's a lot of them out there.

I just looked at a Vanguard one yesterday that was returning right around ten percent to investors over the course of the last decade, and it was holding Total Stock Market Index Fund inside of it, an international index fund inside of it, and a little bit of bond exposure as well. And It was a great fund to hold.

I mean, that would be a target date fund that you could literally have something that would be comparable to something like a robo-advisor, where it's automatically rebalancing for you, but it's inside of just one specific fund, and you don't have to pay those robo-advisor fees. And the expense ratio on that fund was, like, zero point zero six percent.

So it is really, really cost-effective to look at something like that if you wanted to go that route. And so a couple of things I would say here is for you, the order of operations I would consider is, one, making sure that you have an emergency fund and a high-yield savings account. If you don't have six months of expenses in a high-yield savings account, that's really important, and that is number one.

Two is the 457 maxed out. If you are gonna continue to do that, that would be something I would consider, especially as a higher earner. If your income is as high as I am anticipating that it is right now, if your income is higher, a 457 is going to help you with your tax efficiency. Then doing that, uh, backdoor Roth I think is really, really important.

And then looking into, you know, do you have the option for a 401k, or do you have the option for a 403b? You may not, but it's definitely worth checking into, because then you could do something like the mega backdoor Roth if that's available. And then lastly, looking at your taxable brokerage account. A taxable brokerage account, especially if you wanna retire early, is a wonderful account.

In fact, this year I've been really prioritizing and hammering away at my taxable brokerage account and getting a lot more dollars in there, because I think it is so powerful to have that additional flexibility, and the tax efficiency is so much better than what most people think it is. And so for some reason, the taxable brokerage account has gotten this bad name for being tax inefficient, but specifically, it's much more tax efficient than most people realize.

It's not a Roth, but it is something that is absolutely fantastic when you're looking for some efficiency. So I think for a lot of people out there, you know, as a high earner, that's the way that I would look at that, is getting dollars in those accounts and trying to maximize them as much as you possibly can.

You're thinking about this the right way, Josette. I think this is really, really important to make sure that you're on top of this, and you are thinking through this process in the right way. You got your asset allocation down first, and now you're saying, "Hey, I wanna understand asset location." Hopefully, this helps a little bit, but in fact, you know, if you're investing just in broad-based index funds or target date funds, you can have them in all these different accounts.

But if you get more specific, like those dividend funds, looking at things like potentially either the taxable or the Roth IRA can be really, really helpful for funds just like that. But amazing work so far, and if you have any other questions, please let me know. All right, the next question. "Hi, Andrew.

Hope you are doing well. I just started listening to the podcast, and I love it. And I just feel really stuck right now, and I was hoping you could answer some of my questions. I just started my first job after college, and I am 21 years old. This year, I will make about $115,000 before tax." Amazing for a 21-year-old.

"I just moved to New York City, and I have about $30,000 that was passed down to me sitting in a regular savings account through my bank, and currently my take-home monthly income is about $5,800. I'm currently getting my 401match, which is 4%. My question is this: I am currently paying $2,500 a month for rent.

My dad doesn't think I should start a Roth IRA yet because he thinks I need liquidity, but I can max it out right now with my $30,000 in savings, and I wanted your opinion on what you think I should do with this large sum of cash that I have barely growing. My second question is about budgeting. I just don't know how much of my monthly income I should be saving and investing versus spending."

All right, so this is a great question, and I'm gonna talk through this. A, first of all, amazing that you are thinking about this at 21 and you are starting this at 21. The first thing I would say to you before anything else is developing these financial habits that we're about to talk about right here is the most important thing that you can do.

If you can maintain these habits and not try to go with the flow of what everyone else is doing in New York City, I promise you, you will be a very wealthy person because you have the most valuable asset of all, which is time. And so what we're gonna talk about here is what you should do potentially currently, but it's also gonna be one of the things that as you start to build out these habits, just note that doing some of these is gonna be setting you up forever.

You are laying the foundation to build up one of the strongest financial houses that you possibly can. And at 21 years old, you have no idea how much time you really have. And you could get to the point in time where you reach age 30 and you look back and you say, "Wow, I am so glad that I started that now.

I didn't fall prey or I didn't get tempted to fall into the New York lifestyle where I'm out every single night, you know, paying $30 for a drink, or I am out, you know, spending $5,000 per year on my gym membership," unless that's something you really value. And so in reality, I'm gonna give you kind of a framework here to think about this And get the ball rolling as someone who is younger and starting to make good money.

So the first thing I would do is A, the $30,000. Let's talk about that. I would consider moving that in just a high-yield savings account. And a regular savings account is gonna pay you close to nothing, and so moving it, you know, right off the bat to a high-yield savings account is gonna be helpful. My favorite ones are linked up down below in the show notes if you want to check those out.

And the reason why we're doing this is we wanna do some math and figure out, okay, how much are we spending every single month, and how do we make sure that we have six months of expenses saved in an emergency fund? So this is a gift. This is gonna allow you to have that $30,000 saved in an emergency fund and have the ability to be able to, to really get the ball rolling onto that.

So if you spend $4,000 per month, which probably is not happening in New York City, but if you are because you're frugal, that would be about $24,000 worth of this would be saved into a, an emergency fund. Now, because you have a new job, you're in a new city, high rent points, all of those things are gonna be making sure that you are on the higher end first and making sure you have that six months on hand, and then we go from there, okay?

If you have any high-interest debt whatsoever, obviously we wanna pay that off first, and then we're gonna go into this list. All right? First is looking at the Roth. The Roth allows you to put $7,500 per year into this account, and this is gonna be the point in time where as you see, because you're younger and you're not at the income limits yet, you can put money in a Roth, it can grow tax-free, and you can pull the money out tax-free.

Now, let's do a little fun math here, okay? I'm gonna pull up an investment calculator, and I'm going to say, okay, if we're starting from zero, investing $0 whatsoever, and we start to max out our Roth IRA from the age that you currently are now, 21, all the way till age 65. Maybe you stop earlier than that, but I wanna have fun with this exercise, and let's say that you do it all the way until age 65.

And you got the average rate of return of the market at a 10% rate of return, and you did this once a year every single year with $7,500 per year. Now, in fact, you'd probably be putting a lot more than that into this account because Roth limits go up every couple of years, and lately they've been going up every year.

But every couple of years, and it's based on inflation and a number of other things. But let's just see exactly where you would land inside of that Roth IRA. All right. You would land with $4,894,805 inside of your Roth IRA. Now let's say you already had an emergency fund in place, you had a little cash on hand, and you decided, "Okay, you know what?

Actually, I've got this $30,000. I'm also going to invest that money as well." This would increase the amount that you have during this timeframe to $6.8 million. Okay? So this is the importance of getting invested early. If you have a foundation like this, it went from 4.8 to 6.8, a $2 million difference because you have so much time for this money to compound.

That $30,000, if you invested it, could turn into $6.8 million. So if you have a cushion in place, like if you have something in place or you have a lifeline in place f- with your emergency fund, this is why it's so important to kinda get that built up as fast as possible, so you can get money like this moved into your investment accounts and moving it into there quickly.

So that's just the starting point and just some math that I wanted to show you really quickly as we went through this. Okay? The Roth is gonna be the starting point. If your employer offers a 401, you also first, even before the Roth, want to get that 401match all the way up to the match, then you go to the Roth.

Then once you finish the Roth, going back to your 401is gonna be a great move and a great way to look into this. Okay? Because this is a very, very powerful thing. A 4% match on your current income right now is $4,600 per year. That is free money, a free $4,600 per year that you can go and use and build wealth over time.

And so this is free money that could be added to your investments. So let's say we took that $7,500 and we looked at this again And we said, "Okay, well now you're getting an extra $4,500 every single year," which would bump this up to $12,000. And so instead of having $4.8 million, you'd have $7.8 million just by taking that match over the course of the next 44 years, because you have so much time on hand.

Now, you maybe wanna retiring early. I'm just giving you the example of how powerful time can be. It is a $3 million difference in your situation if you got a 401k match that was at a 4% rate and you took it. So just really important to understand that. I wanted to do the math so that you could see this.

Okay, budgeting. Rent is about 43% of your take-home pay, or about 26% of gross, which is normal for New York City, but it is heavy. So if transportation can be reduced, if you take the subway... You know, I, my sister lives in New York City. She works on Wall Street. I know she takes a lot of trains and subways, and a lot of different things that she has to do all the time.

She's commuting all the time. She reads a lot of books because she's commuting constantly. Uh, and if you can really reduce, you know, your transportation expenses, that'll help out with the rent costs significantly. Now, I know there's Ubers, there's Waymos, there's all different kinds of stuff that you could do.

Uh, but it's really important to reduce some of those costs if your rent continues to go up, so that you can make sure that you still have a balanced budget of 60% or less of your income going towards those needs, okay? That's gonna be really, really important. And then watching out for lifestyle creep.

Your friends are gonna wanna go out all the time. They're gonna wanna travel. New York City is a very expensive city. Your costs when it comes to things like groceries, your costs when it comes to things like going out or doing things, is gonna be higher than someone in the middle of Alabama, and it's just part of doing business.

So focusing on your income number and increasing that income every single year is very, very important when you are in a high cost of living city like where you are. So I would make sure that you are getting money into these accounts. You have the emergency fund in place just to protect you against anything that could happen in life.

But then thirdly is that you reduce the costs where you can on areas that don't really matter to you. Once you learn the skill of spending and you understand how to spend wisely, it'll transform the way that you manage money. So I hope this was truly helpful. I would maintain the $30,000 in terms of liquidity for the emergency fund and making sure that you have that on hand if you have no liquidity whatsoever.

But if you can get to the point in time where you have an emergency fund, then investing huge chunks when you're young can be very, very helpful. So I hope this answers your question. If you have any other questions though, please feel free to reach out. All right, the next question is from Frank. Shout out to Frank, because Frank has a, a great situation here.

So, "I've been listening to the pod for about four months now and getting married, and it's helping my wife and I tremendously with budgeting, investing, paying down debt, and overall putting us in the right direction, so thank you." Well, thank you, Frank. I'm really excited that it's helping you, and, and congrats to you for taking action.

"I currently have about $27,000 of company stock from my job that has already vested. I have two more vests coming in November 2026 and May of 2027 that will equate to about $7,500 each in today's market. My question is, should I take the vested stock, sell it, and put the cash in a high-yield savings account, or let it sit?

I know there's tax implications if I sell, and my wife and I would like to use the money to purchase a home once we have our debt manageable and emergency fund stocked. Thanks for all you do. Best, Frank." So Frank, first of all, uh, let's talk about this for a second. If these are RSUs, I don't know if they're RSUs or employee stock purchase plan, it doesn't ma- you know, either one there.

But RSUs and ESPPs are really, really important when it comes to understanding how to manage them. Now, I actually talk about these a lot, uh, and think about these a lot with a lot of folks in Master Money Academy and a lot of folks in a bunch of different situations, especially some of our high earner coaching that we're doing in these one-on-one sessions.

And a lot of times when we think about these, we wanna think about, okay, what is the risk of having these, this company stock on hand? Well, the risk is your income comes from this company, and now you have a net worth building in this company stock as well. And so at vest, I think we need to understand first the tax implications, and then secondly, what to do with that money.

So, how are RSUs taxed? Well, this is actually a very important thing to understand, because at vest, the full value is taxed as ordinary income on your W-2, okay? The full value of those RSUs is gonna be taxed as ordinary income. So that has probably already happened, and then your cost basis is the vest date value.

So selling only taxes the change since then, okay? So once your money vests, when you sell, it only is gonna be impacted by the change since the date that your money vests. So let's say for example, it vests at $100 and then you sell it at 20, the difference, the $20, is where you are going to be paying taxes, okay?

Held over one year after vest, you get the long-term rate. So if you hold the stock over one year, you get the long-term rates. One year or less, you get short-term capital gains rates. And so it's important to understand that, uh, and it's taxed as ordinary income. That's the difference between the two. If you believe in the company, and you feel as though you can hold chunks of it for a year to lower that tax bill, you can do that, but it may not make a huge, huge difference for you.

Now your withholdings. The withholdings that you have typically on an RSU can be less than what you would actually have to pay in taxes. So a lot of times companies will automatically withhold about 22%. That's like the go-to for a lot of different companies. And so then if you are in the 30% tax bracket or the 32% tax bracket, then you could have a surprise tax bill that you did not anticipate.

So you wanna check how much your withholding is at your current company, and then see if you need to adjust your withholding based on what they are withholding within your RSUs, okay? So if that's the case, that's the starting point, is how is RSUs taxed? Well, you can get a surprise tax bill if they don't w- withhold enough, so it's really important to understand.

But let's talk about why you should consider selling or not selling Not selling is what you would do if you believe in the company long term. Like, if you, if I worked for NVIDIA or Google or Amazon, I'd probably be holding onto those shares. But if I ha- I worked for a company that I felt as though I didn't know what the future actually ho- he- holds, you know, you're working at a company, everyone's rah-rah, shish-kabob, they're saying this thing's going to the moon.

But in reality, what you don't wanna do is have this concentration of your income and your net worth, meaning the stock options that you have on hand, all coming from one single company. That's a huge concentration risk. And so for me, in that situation, when I used to get stock options, I would sell them.

I would sell them for cash, and then utilize them in the way that I would as income. I would treat it as income coming in once they're sold. So not expecting that when they vest in 2027, I'm gonna anticipate this as income. But once they're vested, then they're yours. And so that's when I would anticipate the tax implications, I would anticipate some of the other things, and I would sell those shares, I would take the income, and I would put it in the exact order that I was prioritizing.

So if you are prioritizing buying a home, if you and your wife want to buy a home, selling those shares and then putting them in a high-yield savings account will be the place to consider putting those if you were going to use them for a home. Why? Because you don't wanna invest those dollars, the market goes down, then when you're ready to buy a home, all of a sudden your money is cut in half.

And so instead, putting those in a high-yield savings account is, is great. And so your timeline sounds like it's three to five years, so it shouldn't be in stocks, let alone in a, a single stock. And so that's where I would take those dollars and put them in a high-yield savings account. Again, we have our favorites down below if you don't have one.

Uh, and that's the way I would look at this. So couple of things I would say here is, in my opinion, this is just my personal opinion, you can do what you want and do your own research on this, but I would look at the company stock. I would personally, if I was in your situation, I would go and sell those shares, and I would move that money into...

Again, this is not financial advice. You gotta do your own research. But I would move those shares into, um, a high-yield savings account if my goal was to buy a home. So here's what I would say is, A, look up each lot's vest date basis and understand the basis of your RSUs, if that's what they are, and then sell losses and small gains first.

So if there are losses, you could sell those first for the tax implications. If you have a really big gain on a lot of them, uh, then it may be worth waiting until the one-year mark based on the tax implications, but not the cost of staying concentrated. So like if, if the cost of staying concentrated could cause your company to go down, if you're in a high-risk company or high-risk industry, then that would be a situation where I would still consider selling.

And then proceeds, in order, would go to emergency fund, debt, and then towards your house fund in a high-yield savings account if that's your priority. Making sure and, and with the caveat that you are hitting your retirement goals, because buying a house is a luxury. It is not something that is just a prudent financial decision, so it's a luxury to have on hand.

And then if you are gonna keep some company stock, I like to keep it at a very small slice of the overall portfolio, 5 to 10%, around there, uh, would be the, the price that I would be looking for. Outside of that, then you have too much of your income and your net worth relying on one single company, and that is concentration risk that is just not worth taking.

So that's how I think about it. If you have any questions on that, please let me know, and thank you so much for sending in the question. All right, so we're gonna talk about the financial scam of the week because there are a lot of, uh, scams that are going on right now because of midterm elections. Now, anytime there's an election going on, you're gonna get a lot of different text messages, you're gonna get a lot of messages about a, a number of different things.

So there's a couple of different financial scams that I want you to understand. Now midterms are a couple of weeks away. This is pretty much something that you need to understand, though, any time there are elections going on, and I'm gonna talk through a couple of different ones. First is campaign or investment pools.

So there are people that are going around saying you can get a guaranteed return if your candidate wins, plus they'll push you to recruit friends, meaning a bunch of people pool money together. If a candidate wins, then you all get X amount of dollars back, and you reap the rewards of having a pool of money all put together.

Avoid these at all costs. If you are interested in one of those things, I would say that you need to get your priorities straight when it comes to your money. Uh, that is not something you should be doing, okay? Secondly, are these things called PACs, and if you've never seen PACs, there's a lot of fake ones out there.

And these are things where there's PACs and super PACs, and they look legitimate. A- if you donate here, you know, people are saying, you know, this, this could, you know, help your, your cause. Uh, I would avoid those at all costs if you can. Third is there's fake merch out there. There's political merchandise that people are creating these stores for based on a lot of these different things that are happening right now.

And with that political merchandise, the merch never ships, and they just keep your money. If you're looking at political merchandise on a random website, for example, you wanna be very cautious about putting your credit card information into that website. And then there's the voter registration texts.

These are the ones that I have seen to be the most common. I've actually asked a couple of friends like, "Hey, what kind of messages are you getting?" To kind of warn you all as well to see if there's anything out there that I'm not seeing, and most of them are getting these voter registration texts saying, "Hey, you're not registered" with a link to a false page that kind of steals your personal information.

So it'll say, "Hey, you're not registered right now." You go to register 'cause you thought you were registered. You give all your information, your Social Security, your home address, everything you can. It takes that information, and then all of a sudden it has stolen your information. And the websites look legit.

They look real. They look like government websites, but in fact are not, and they can steal your information that way. So how do you spot some of these? A couple of ways. One is urgency. Urgency is the number one way to spot any scam when it comes to a financial scam. Uh, if they are trying to push you to do something really quickly, avoid that at all costs.

Two is any donation promising a return. Like, this is something that drives me up a wall. If you are donating money but you're expecting a return, that is absolutely ridiculous. Those two do not go hand-in-hand. That is not an investment. Please do not invest in political campaigns. That's freaking ridiculous.

Three is an unsolicited text or email saying your registration has a problem. You gotta be really cautious with this stuff now, very cautious with this stuff to make sure that you're on, on track with this. And then four is a registered PAC spending heavily on fundraising, consulting, all these different things that you probably don't understand.

So if you wanna check your registration yourself, you can go to vote.gov. That's the place where you can actually check if you are registered. And if you wanna check for merch sellers, you can go to the Better Business Bureau if you're gonna buy merch. And so these are just a couple of different things that you wanna make sure that you're looking at.

If you want to verify a PAC or a committee, you can go to fec.gov before giving to make sure they are legitimate. And so you wanna double-check on a lot of this stuff because the FBI is, is reporting a lot of different of these scams, and they're happening more and more and more. And a lot of times you may be asking yourself, "Well, how do they get my information?

How do they know my information?" And that is from usually data brokers. They can go to a data broker website, and they can get all of your information, things like your name, your address, your phone number, all these simple things that you feel as though should be private. Well, data brokers sell that information to scammers just like this.

They can publish... Y- if you Google your name or your address in quotations, you'll see a lot of different things there. And the more information that's out there, the more believable these scams can get, and that's why I use a service called DeleteMe. So DeleteMe will remove your personal information from these different websites, and it will make sure that your information is continuously getting removed.

And it's very important to do this because, again, if a, a scammer gets a piece of your information, they can start to scam you in a number of different ways. And the reason why I'm so gung-ho on this stuff, by the way, is because I had my identity stolen, so I know how painful it is to have to go through all of this.

And so a service like DeleteMe is absolutely amazing. They remove your personal information from these data brokers, and they continuously keep checking and making sure that your personal information stays removed and is constantly getting removed. And so if you go to joindeleteme.com/pfp20 You can get 20% off of DeleteMe.

And again, this is a service I have been using for a very long time. They are an awesome service. Can't recommend them enough because they save me so much time. If you try to get your information removed from these data brokers on your own, it would take you hundreds and hundreds of hours. And in fact, DeleteMe has a little thing when they send you a report that tells you how many hours they will actually save you.

So very, very important stuff, uh, making sure you get your information removed. Now, always be checking for these scams. Always get updates on scams like this because you want to understand even if you're someone who is like really on top of this stuff, they can still get you when you're in a rush. They can still get you when your mind's not all the way there.

There have been times where I've clicked a link, and I talk about this stuff all the time. There have been times I clicked a link and I started to put in information. I'm like, "Wait a minute. I don't know if this is actually real. Back up for a second," 'cause I'm moving super fast and I'm going through a bunch of different things.

So it can happen to anyone, so make sure you're on top of this. I do not want any WealthBuilders getting scammed All right, the next question is from Arellano. Is there a time where stopping to contribute to retirement is a good idea? Like job change, school, moving from two household incomes to one, and how impactful can this be for a year if we don't max out our Roth IRAs in a 23-year plan?

Currently, I'm 34 and planning to retire at the age of 57. So this is a wonderful question because many times we have a lot of things that can happen in life. We have talked to, for example, in Master Money Academy, I've talked to people for-- who are dealing with childcare issues, meaning they have to spend a lot of money on childcare.

And during this season of life, you know, they can't invest as much as they want to, and sometimes they even have to pause to kind of get their income up to par where they can actually begin to invest again because childcare is so expensive. Or they just got married, and they had a wedding, and they had to take a lot of their investment money and put it towards a wedding.

Or like Arellano said here, they went from two incomes down to one, or they lost a job or all these different things. And there was a time frame, there was a year where I had to do this. I was starting up a couple of different businesses. My wife was working, and her job was kind of paying our bills while I was starting up these different businesses.

But I paid myself zero dollars for one year while I was getting the businesses going and getting them started. And when we did this that year, it was actually a pretty impactful thing, and I'll show you exactly why. Now, when does it make sense to pause investing? One is if you have no emergency fund, because if life happens to you and you have a lot of things raining down on you, all of a sudden, if you have no emergency fund on hand, you're gonna have to go into debt, and that is going backwards when it comes to your money.

So if you have no emergency fund, it would make sense there. Two is if you have high-interest debt, that is another reason to s- pause investing and get as many dollars invested as you possibly can. Three, if you have a temporary income drop or your expenses temporarily rise for a short season of time and you don't have enough to go around in all these different places, those are all gonna be the things where it could make sense to stop.

But in all these scenarios, I want you to try to keep your employer match because that at least is free money, and that's 100% rate of return that typically you can't get anywhere else. Now let's look at the math of this, all right? Because the example that Arellano said here was that the math of let's look at something like maxing out two Roths, okay?

So the 2026 Roth limit, uh, is $7,500 each. So for a couple, this is gonna be about $15,000. Now, $15,000 invested once at the age of 34, compounded for 23 years, assuming a 7% rate of return, would be about $71,108 valued at the age of 57. And if you got a 10% rate of return, it'd be about $134,315. Now, these are hypothetical nominal returns.

They're not adjusted for inflation, but it gives you the example of exactly what skipping $15,000 in one year could cost you. It can cost you anywhere from 70 to $130,000 plus in retirement from missing that one specific year. So here's a couple of things that I will say, is you don't wanna make this a habit.

You don't really want this to go multiple years, because it is a big impact on your long-term dollars when it comes to your portfolio. And so to soften this blow, a couple of things that you can do. One, partial contributions are gonna beat zero contributions every single time. If you can get two grand or 100 bucks a month into at least your Roth IRA for the years that you are struggling, or the years that you just don't have enough money to go around, awesome.

That's something you should consider, and that is something you should get as much as you possibly can in there, because it's gonna keep the habit alive, and it's also going to help you just get those dollars moving. You can see how much that money can grow over time, and it's gonna be able to soften the blow a little bit.

Two is that 2026 Roth contributions are allowed until April of 2027. So if you get through the entire year and you get towards the end of the year and you're saying, "Ah, I can't get all of it maxed out for this year," but you still have actually until April, till tax day of the next year, to contribute for your 2026 contributions, which is awesome.

If you are on one income, you can still have a spousal IRA, which I think most people need to double-check. You can have a spousal IRA or Roth IRA. If you felt as though you couldn't have two Roth IRAs because one person's not working, you can. You can have a spousal IRA. And Roth contributions can come back out tax minus the penalty free as, as a last resort if you needed to.

So those are all just things to consider. Now, is it the end of the world if you miss a year of contributions because you're trying to start a business, or because you just had a baby, or just because you went down to one income? No. The risk that you're taking is just losing out on compound interest. But if you can get a little bit of money in there, or you just feel as though, "Ah, this is worth the risk for the lifestyle change that I'm going to make," great.

Just don't make it a habit. Don't make it a habit that all of a sudden every year this is happening. And if you're taking a vacation to Tahiti instead of mar- maxing out your Roth IRA, well, that's probably something I wouldn't do, because that vacation to Tahiti is costing you about 70 to $134,000. So just making sure that you understand that is, is super important, but great, great question.

I truly appreciate you asking it, and let me know if you have any other questions. The next question is from Jeff. Jeff says, "Hi Andrew, I enjoy the show but I am not sure if you read these, but thought it'd be interesting to hear what other people in the community have to say. The general assumption is that a millionaire has seven streams of income.

I'd be curious to hear what other people actually have. Like I believe dividends and capital gains are considered income, but those are reinvested so I don't see the money until I sell. I'd be curious to hear what other streams others leverage." All right, perfect. This is a wonderful question. For everyone out there listening right now, if you're listening on Spotify or YouTube or Apple Podcasts, leave a comment down below and let me know what your streams of income are.

Now I'm gonna explain what counts as a stream of income, what doesn't in a second here, but I think it's really important to make sure that you understand where all of this came from. Now, this is a commonly traced study from the IRS, okay? The IRS looked at, you know, some of the higher earners and it, it listed seven categories of income on tax returns, okay?

Now the write-up says that only about 29% of the people in the study had more than three streams of income when they looked at this. But either way, they're tax form categories not just side hustles, okay? So what counts as income? One is earned income. Earned income is your salary, it's your wages, it's your bonuses, it's your self-employment.

All of those things are earned income. Two, portfolio income. This can be things from dividends, it could be interest, it could be capital gains. Portfolio income is something that I think most people listening to this podcast have or should consider having if they don't already. Three is passive income, and passive income is something that can be truly passive, but there's not much passive income options out there, or business income.

So this could be things like rental income or business profits or royalties. Um, all those things could be passive income. Reinvested dividends in a taxable account are taxed the year they're paid, even if you never see the cash. So if you have something like a job plus a brokerage account plus a high-yield savings account, then you already have a couple of streams of income right there that allows you to, to see how this works.

Now, m- most people have a few streams here. They have the W2 job, and if you have a spousal income, then you have two incomes, because if there's two people making an income, that's two different sources of income. You have index fund dividends or index fund income. You have a high-yield savings account or CD or Treasury interest.

All of those can be considered different sources of income. Plus, you have capital gains from selling a business or freelancing or a rental property, then all of those can be different sources. And then later on in life, you could have pension income, you could have Social Security income, you could have retirement account withdrawals, you could have an annuity.

So there's all these different ways that you can think about income streams and how many you have. I personally like to have a lot of different income streams. Now, I don't-- I'm not gonna say you need seven income streams, 'cause I don't think you do. But I like to have a bunch of different ones. So usually, when I have a business, I try to look at all the different income streams that that business can generate.

For those of you who don't know, I have a lot of businesses that I invest in, a lot of businesses that I own, and I'll give you a couple of different examples, okay? So there are different ways that you can earn an income. And if you look at a business, and let's say you own a coffee shop, okay? If you own this coffee shop, well, what's the number one way that you can have an income stream?

Selling coffee. That's number one, okay? But I have walked into a coffee shop, and they have sold ice cream. That's income stream number two. They have sold pastries. That's income stream number three. Why? Because pastries is a different category than coffee, but a lot of people who are getting coffee also usually want some breakfast or maybe a light snack or some lunch or whatever else.

And so you can look at this coffee shop and say, "Okay, three things right there: desserts- pastries, and third is going to be coffee. But when you walk into a Starbucks or whatever else, what else do they sell? They sell merchandise. They sell cups. They sell coffee beans. So there is two more streams of income right there, consumables that you can take home.

And so these are the types of things that I think about when I start a business, is I wanna have multiple streams of income. And you can treat your personal finances the same way. What are a couple different ways that you can diversify your income sources so you're not just relying on one single thing?

If you're relying on one person's income and one person's income only, and you don't have a portfolio, or you don't have an emergency fund, or you don't have these other things in place, well, then all of the sudden, relying on that one income means that you are one other person's decision away from having no income because that person's boss can just say, "Hey, come into my office" on a Friday afternoon, "You're fired."

Now you have no income streams. So that's the most dangerous position that you can be in. And I think for many of us out there, we need to make sure that we have at least a couple of different things to fall back on. So your emergency fund is income protection. That's why I talk about the emergency fund so much, is it's protecting your income.

But secondly, if you have a portfolio in place or you have other ways that you are building wealth, that could be super helpful. So what are some of my personal income streams? Well, me personally, one is businesses, a business portfolio, and I have a number of different ones. So that's multiple streams in and of itself, okay?

And that can be something that can be considered one stream for this, th- what I'm talking about here, but honestly, it's tons of different streams, and I diversify the income sources in each of those businesses, just like I talk about with the coffee shop example, okay? So I have a ton of different income streams just within the businesses alone.

Two is portfolio income. Now, I don't live off any portfolio income whatsoever. I'm building my portfolios to grow larger and larger because I have big goals with those portfolios, and so that is the second one. Three is I have W-2 income. So I have W-2 income where I work with companies, and we couldn't do, like, a 1099 contract, and so I actually do have a W-2 income with companies that I work with Uh, which is newer, but it is something I had to do, uh, based on some of the things that we're doing.

So that's the third way. 1099 income is things like, uh, consulting, being a contractor for people, helping people with dir- certain things, so I have 1099 income as well. That's the fourth way. Five is royalties. I earn royalties from a number of different things, investing in businesses to a bunch of different things.

So royalties is the fifth one. And so those are the five major income streams that I have. I used to have real estate income, which was six. Sold all my properties. I don't have any properties currently. So those are the five major income streams. Now, number one is really probably 12 to 24 different income streams total, but those are the five major ones that I currently have.

So do you need seven income streams? No, you do not need seven income streams. Do you need to diversify some income streams so that you don't rely on just one income stream? I think you do. I think you should not rely just on your job W-2 income. I think you should diversify as much as you can, and part of that is just taking a chunk of your money as it comes in and putting it into your portfolio or putting it into your Roth IRA or your HSA.

That's why we preach this stuff, is because it's so important to diversify those income streams so you're not just relying on one single thing. You have fallback plans. You have backup plans. You have ways that you can access cash in different ways. That way, if someone else makes that decision on your behalf where your income streams go down to zero, you have some fallback things to go back on.

So really, really important. But A, I think if you wanna make a lot of money, you gotta grow that primary income first, take that primary income, and then put it into other diversified sources that are gonna allow you to, to grow that stuff as time goes on. So really, really great question, and I think it's really important for us to note, you know, how that works.

Thank you so much for sending it in, and if you have any other questions on that, let me know All right, the last question for today is from Nick. Nick says, "Hey, Andrew. I really enjoy your content and find your podcast the only one I can consistently listen to and find value." Well, thank you so much, Nick.

I, I never grow tired of hearing that stuff. I s- thank you so much. "I've gotten myself in a bit of a pickle financially and could use your advice. I've racked up about $7,000 worth of credit card debt on two different cards. I wanna get rid of that debt as quickly as possible because of the high APR. I can't really eliminate any discretionary spending, as I currently pay 70% of my income to needs, and I have a plan with my boss to gradually increase my income, and I am looking at the possibility of a second job, but that will be difficult, as I have a child and a wife attending master school.

I have a 401from my previous job valued about $11,000, but other than that, I don't have any investments. I also have about $20,000 in student loans that I have to start making payments on this month. My question is, should I withdraw my 401to pay off the credit card debt and restart my retirement account?

I understand I will owe taxes on the withdrawal and will be giving up a good chunk of change to withdraw, but I am only 27 years old, and I feel like I can recoup the losses over time and eliminate my credit card balance and the stress along with it. I'd really appreciate your advice, and I'm looking forward to your next episode."

So Nick, this is a tough position to be in with a young family, and this is a tough situation to be in if you end up doing this. Now, what does the cash-out cost? Let's just look at this for a second. Let me do the math really quick. Before 59 and a half, on ordinary income plus a 10% additional tax, this can cost a couple different things.

If you're in the 12% tax bracket, it would cost you approximately $8,580, uh, is what you would net out if you took that money out. And so it'd be, you know, 1,100 for the 10% penalty and about 1,320 for the federal tax. If you're in the 22% tax bracket, you would net about $7,480, and the penalty would be the same, but the federal tax would be $2,420.

So I did the math for you, uh, beforehand. If you left it invested until the age of 65, 11K could become a hundred and forty-three thousand nine hundred dollars at a 7% rate of return and $411,400 at a 10% rate of return. So there are better ways to attack the $7,000 than taking it out. I'll put it that way first, okay?

I would call both issuers, and most people don't know this, and first, ask if you can lower the APR And say, "Can we negotiate this interest rate? I cannot pay this balance at the current APR. Can you please lower the APR?" Give them the sob story. Tell them, "Hey, I've got a little baby here. I've got a family, and I'm just trying to do the best possible thing for my finances."

Okay? Two, you can look at something like a 0% balance transfer card if your credit allows you. The fees are often 3 to 5% to transfer this over. But if you feel as though you could pay this off in a year, if you're really locked in at 0%, if you could get this money done, I would say do that first. Then making sure that you're making minimums on all the cards and then paying off the lowest balance first is super important because I want you to make sure that you're getting after it and getting some wins there and getting that done.

And then from there, going step by step. If you have extra money coming in, I want you to throw the extra dollars, I don't care if it's $10, $20, $30, $40, $50, towards this. If you have stuff to sell in the house, I want you to sell that stuff in the house and throw it towards this. But I would not Interrupt compound interest in your 401because of the opportunity cost of having $143,900 or $411,400, depending on the rate of return of your hypothetical returns inside of this account.

It's a $100,000 decision for a $7,000 credit card debt, and I would be cautious about taking dollars and putting it towards that. Okay? Now, let's think about student loans for a second, too, because that does restart. If that does restart, you know, you wanna make just the minimum payments on those student loans until you get the credit card debt done, then you can go back to the student loans for that timeframe.

Now, other options that you have on hand, and I don't like any of these options, uh, but these are just backup options you could think through, is a personal loan. That will lower your interest rate potentially, uh, but you wanna get it paid off as fast as possible. There's closing costs, things like that, so you just wanna be cautious about that.

I don't love it, but this is just another option to think through. A lot of times those go at, like, 11, 12%. It's still really high interest debt. You would still really need to attack it, but I want you to think through that, too. Secondly is 401loans. Really don't want you to do that either because it's interrupting compound interest for a short period of time.

But if it does allow you to do a 401loan, you could usually do, like, 50% or so of the 401. Those would be my last two resorts if I look at this route. And then lock in some dates on your income. I think increasing your income is gonna be the number one thing you wanna focus on. I know you and your employer are working on that.

Side hustle-wise, if you have time, you could drive. Like, this is where I'm actually a proponent of doing things like Uber Eats if it makes sense based on, like, you know, evenings, weekends. You know, if you can take every extra dollar that you make from Uber Eats or something like that and put it towards your debt to get that paid off, that's when I'm a proponent of it.

Not for, like, long term or anything like that. But in the short run, to get your income increased to get that debt paid off, I think that's super, super important. So thank you so much for sending that question. I truly appreciate it. I hope this is helpful. If you listen to the episode I just did on 19 different ways to pay off debt faster, that episode gives you a ton of tactics and tips that I would love for you to check out.

Even the micropayments, I think it's so important to do stuff like that. You will get ahead, and you will get it paid off quickly if you do that kind of stuff. So don't pull from your 401if you can at all costs. That is the last thing I want you to do. Instead, look at some of these other options that are here.

Well, thank you guys so much for listening to this episode of Money Q&A. If you guys have any questions, feel free to shoot me an email and send in your question there. If you join the newsletter, you can just respond to any of those newsletters, and I-- you may get your question answered here on the show.

Also, if you want to work with me one-on-one, again, shoot me an email, andrew@mastermoney.co if you make over $100,000 per year. If you don't make over $100,000 per year, you could join Master Money Academy, where we have group coaching every single week. In fact, I'm about to do a coaching call right after this with our members inside Master Money Academy, where you can ask me questions on a weekly basis and I will help you with your finances.

Plus, we have- All of our courses in there from Index Fund Pro to Master Your Money Goals to the Wealth Builder's Journey, which is our 25-step system, to a bunch of new investing courses that we are adding inside of there, and all of our master classes. It is absolutely amazing for the value of what you are getting inside Master Money Academy.

Plus you have a community of people who are all working towards the same common goals. So in any event, I appreciate each and every single one of you being here. My goal is to bring you as much value as I possibly can on this podcast. I hope we did that today. If we did, consider leaving a five-star rating and review or subscribing to the show or both, and share this with a family member or friend who can, who can learn more about money.

All right. Thank you guys so much for being here. I truly appreciate each and every single one of you, and we will see you on the next episode