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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. This week’s episode continues our celebration of our listeners’ money wins in 2021.
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Setting and working toward money goals may sound daunting, but you can cut the challenge down to size by picking a single target at first. Making progress on that initial plan may inspire you to add more goals later. If “save for retirement” seems overwhelming, start by just reading about retirement savings options. Becoming familiar with the topic can pave the path to making a choice, then setting up automated deposits.
Use that momentum to branch out. Maybe once your workplace retirement plan gets rolling, you add a Roth IRA to minimize your tax bill in retirement. Or perhaps refinancing your current mortgage at a lower interest rate frees up cash in your budget to pay down other debt.
Paying down consumer debt like credit cards can set you up to achieve bigger goals in the future. Keep in mind how much debt is too much, and look into debt paydown strategies. Reducing credit card balances also can beef up your credit score, which unlocks more financial choice.
Before you build a budget
NerdWallet breaks down your spending and shows you ways to save.
It’s never too early to think about retirement: An earlier start means more time for your money to grow. And you can have more than one type of retirement account.
Balance your goals: Keeping a 30-year mortgage term but paying extra principal each month lets you reduce how much you pay in interest overall. And it maximizes flexibility if you run into a rough patch versus committing to a 15-year loan.
Fight analysis paralysis and take your time: You might have more luck if you pick a day to concentrate on money tasks like setting goals and automating payments. Then, have patience as you build toward goals that take a while, like an emergency fund or down payment.
More about personal finance on NerdWallet:
Liz Weston: Welcome to the NerdWallet Smart Money Podcast, where we answer your personal finance questions and help you feel a little smarter about what you do with your money. I’m Liz Weston.
Sean Pyles: And I’m Sean Pyles. To send the Nerds your money questions, call or text us on the Nerd hotline at 901-730-6373. That’s 901-730-NERD. Or email us at [email protected].
Liz: Hit that subscribe button to get new episodes delivered to devices every Monday. If you like what you hear, please leave a review and tell a friend.
Sean: This episode, we are continuing to celebrate your money wins. So many of you shared your 2021 accomplishments with us that we had to split it into two episodes, and we still weren’t able to include everyone’s contribution. So thank you for sharing all of your great successes. And let’s get on to the first win of this episode.
Listener 1: Hey, guys. This is Danni. I live in Minnesota, and last year, one of my accomplishments was that I wanted to max out my Roth IRA. I’m self-employed, so that was my first goal, but then this year, because I was able to max out my Roth IRA, I was able to open a SEP IRA, which led me down a path of learning about the different options for retirement when you’re self-employed. So I was really happy to be able to have more options and to prepare better for the future. Thanks.
Sean: I want to get all of our listeners who have Roths and SEPs in a room and just have them talk about the way that they were able to max out their retirement accounts and why they opened up these different accounts, because we have so many listeners who are so savvy and who have great tips around how to put more money into their retirement accounts, which is something not a lot of people actually think about.
Liz: This also points out that you can have more than one retirement account.
Liz: You can have a 401(k) and a Roth IRA. You can have a SEP and a Roth or a traditional IRA. There’s a lot of different ways to put this together. If you are a side-hustler and you have a W-2 job, you can have a plan at work, you can have an IRA and you can have a SEP IRA. So there’s lots of different combinations. You do have to pay attention to how much you can put into each and overall and all that stuff. But you aren’t required to have just one. You can have more than one.
Sean: One of the great benefits of having a Roth IRA when you have a 401(k) is that when you put your money into a 401(k), you don’t pay taxes when you put the money in. But you do pay taxes when you pull it out in retirement.
Liz: Mm-hmm (affirmative).
Sean: With a Roth IRA, it’s just the opposite. You put the money in post-tax, basically net income, and then when you withdraw it in retirement, it is not taxed. And also you can take out any contributions you do put into it pre-retirement without penalties.
Liz: It’s kind of like a backup emergency fund. All right, well, should we move on to the next win?
Sean: Let’s do it.
Listener 2: This is Kat from Atlanta. I called in last year but I’m calling in again to share what I’ve done this year that helped me with my finances based on advice that you all have given. I still had a job, so I was lucky in that respect, and increased my retirement giving, and then I was also able to refinance my condo. So I went from a 30-year down to a 20-year and went a point and a half lower on interest. I was also able to add a little bit towards the principal each month, and I think those were pretty big wins for me as I’m looking for a two-bed, two-bath and have more principal to work with for a down payment. Thanks so much for everything you do. It is a pleasure to listen to you all every week. Thanks. Bye.
Sean: Oh, it’s so good to hear from you too, Kat. I want to say great job on refinancing and actually lowering your repayment term. A lot of folks will refi and then get a new 30-year term, thereby pushing out when they’ll actually be free from their mortgage.
Liz: Those shorter mortgages, though, can be problematic because the payments tend to be higher.
Sean: Mm-hmm (affirmative).
Liz: And if you get in a jam, if you lose your job, you might have appreciated the lower payment. However, it sounds like with that big interest rate drop, Kat might not be paying that much more to get a shorter loan term.
Sean: It’s interesting. I actually was talking with a couple that Garrett and I are friends with and they recently refi-ed into a 15-year mortgage with a lower interest rate. And the monthly payment is slightly higher than they had before, but they will be able to have their house paid off by the time they’re in their mid-40s.
Liz: Oh, that’s very cool.
Sean: I’m so happy for them.
Liz: I think having a goal of being debt-free by the time you’re ready for retirement is great.
Liz: And if you can get there sooner while saving for retirement, doing everything else you need to do, I think that’s great.
Sean: At that point, you can take what you were putting toward your housing payment and allocate some of that to your retirement to boost that as you get ready to close out your final years of working, get ready for retirement and then put some of that into an account, maybe to vacation when you’re retiring.
Liz: There you go.
Sean: Well, Kat, I will say, please keep us posted on your progress. I would love to hear how you’re able to make the most of the freed-up cash you have each month to build up your next down payment. OK, on to the next one.
Listener 3: I started an emergency fund, I upped my retirement savings to 15% and I opened an HSA account — all really great money moves this year. Can’t wait to see what 2022 has in store.
Sean: Awesome. Sometimes, Liz, I wonder if we talk too much about the importance of saving money, but I think that the answer is that there’s maybe no such thing as talking too much about it because it is so vitally important to financial resiliency.
Sean: And all of our listener wins, and how proud they are being able to save, shows just how crucially important it is, and the sense of security and accomplishment you can get from saving money like this.
Liz: And having a goal of saving 15% for retirement is awesome. I also love the fact that they’ve got an HSA. Financial planners love HSAs almost as much as they love 401(k)s with a match, and that’s because HSAs have a triple tax break, which is pretty rare. The money going in is tax-deductible, it’s growing tax-deferred and it’s tax-free when it’s used for medical expenses.
Sean: Mm-hmm (affirmative).
Liz: If you don’t use the money, it gets rolled over from year to year indefinitely, and you can invest it so you can grow it as a supplemental retirement fund. You do need to have a qualifying high-deductible health insurance plan, and those are not a good fit for everyone. But if it works, that HSA could become another significant pot of, once again, tax-free money in retirement.
Liz: OK, well, let’s get on to the next one.
Listener 4: Hey, Nerds. I’m super excited to brag for your end-of-year episode. This year I paid down about $26,000 worth of credit card debt in six months. It was from an old relationship that I got stuck with. I’m super happy that I took care of that. I ended up snowballing the credit. It feels so good to be free. Thank you.
Sean: I want to say congratulations on getting rid of all that debt and getting rid of the both financial and emotional baggage from that relationship, because that, I’m sure, is a huge weight off your shoulders.
Liz: This unfortunately is pretty common. If you get divorced, for example, there’s often a lot of debt that goes with that.
Sean: Mm-hmm (affirmative).
Liz: So, kudos, congratulations and way to go.
Sean: While we don’t know the exact circumstances of how our listener got saddled with the debt from this past relationship, it raised a flag for me that it’s a good cautionary tale about keeping firm boundaries about when and how you merge finances with a partner, because it can be really risky. I’m not saying this person did anything that was their fault. We all know how complicated relationships can be, but I’ve been with my partner for six and a half years at this point, and our finances are still pretty separate. Not because we think we’re about to flee from each other, but just because that’s what works for us and we like having everything clear cut. We communicate about our finances constantly — I’m sure because I talk about money nonstop — but it helps to be on the same page. Know what you want. Make sure you’re working toward your shared goals. I don’t think there’s anything wrong with keeping your money separate in a relationship.
Liz: People do it different ways, and I think keeping it separate has become more popular over the years.
Sean: Mm-hmm (affirmative).
Liz: And, again, speaking of divorce, if you’ve ever been divorced, the statistics I’ve seen, you are much more likely to keep your finances separate. So, however you want to do it, it’s up to you and your partner.
Liz: Really, there’s no one right way to do this.
Sean: I’m sure being the product of divorced parents has also influenced that in some way for me.
Sean: I would like to see some stats on that. Let’s get on to the next listener win.
Listener 5: This is Brian. I bought my childhood home from my mother for what she owed on it in November of last year and immediately this year was hit with the city telling me that I had to have the whole thing repainted. And so I applied for a home equity line of credit, which required me to get my credit in order and raise my credit score, and I was able to make that happen and get the work done on my house.
I also started a new job, which allowed me to make all of that happen. And the new job also has allowed me to upgrade my car for the first time, as I’ve been driving the same car for 13 years. I kept it, but I got a little more fun car. It’s a lot of big things happening for me this year, including starting to listen to your podcasts. So thanks for everything you do. Take care. Bye.
Sean: Oh, well, thank you so much, Brian. We are so happy to help you.
Liz: Having good credit can help you when you’re in a pinch and you need to access money. It also can save you a ton of money, because it gets you better interest rates, better terms. It is so worth monitoring at least one of your credit scores so that you can track your progress.
Sean: I want to say congratulations on getting your childhood home. That is so sweet to me.
Sean: And, also, congrats on getting a new car. I am very vocally pro-Team Fun Car. This is a conversation I have with my partner all the time because he doesn’t think a car is worth spending money on at all, and I’m like, “Well, I drive this thing all the time. I want to have fun in it.” So I’m glad that you and I are on the same page with that, Brian.
Also, man, your story points to all the work that goes into being a homeowner. It reminds me of a story from one of our colleagues at NerdWallet. She recently purchased a home in Portland and discovered that she needed to hire someone to tear out all of the asbestos tile in her kitchen.
Sean: In the same breath that I was saying, “Congratulations,” it was also like, “Congratulations?” Because it’s great that she has a house finally, especially in this very difficult market, but it comes with work. That’s a tradeoff.
Liz: Oh yeah, definitely.
Sean: OK, and let’s get on to the next listener win, which is a text message. I will say, we called out for voicemails almost exclusively, and this is the only written win that we received.
Liz: Oh, OK.
Sean: So great job to all of our listeners, but I liked this one, so I wanted to include it. Here’s our listener’s win:
“Hello. I listened to your latest podcast and wanted to send a money win for 2021. I had major analysis paralysis for a few years when it came to managing money. 2021 changed that. I finally got an HYSA [high-yield savings account], got a cash back credit card with great rewards, and utilized NerdWallet’s app to track my spending and net worth. Just these three free steps alone have gotten me so much more excited about managing my money and checking in with it often. I’ve managed to save over $12,000 this year complete with an emergency fund and Roth IRA. Plus, I feel as ready as one can be for student loan repayment starting up again in 2022. Thank you to NerdWallet for helping me to get there.”
Liz: OK, I totally see why you wanted to include that. That’s marvelous.
Sean: We work hard to help people, and it’s just so rewarding for us personally that it’s actually helping you guys.
Sean: In the beginning of the listener’s question, they mentioned that they had major analysis paralysis, and it’s true that shopping for financial products can feel pretty overwhelming at times, so I’m glad that all of our various tools like our app could help you overcome that. As our listener’s win shows, it’s incredible how quickly you can gain momentum towards your financial goals once you get the right products and systems in place.
Liz: Another thought is, you can set aside a day, maybe even use a vacation day, and knock out these money tasks one after another. Ron Lieber at The New York Times wrote about this a while ago. He did exactly that. I think he had 31 money tasks that he just took care of, because even experts with money can procrastinate or have a backlog of stuff that they need to do, which is reminding me I need to put my financial day on the calendar sometime soon.
Sean: On to our next listener win. Here we go.
Listener 6: My name is Joseph. I am 25 years old and I’m in the D.C. area. My biggest financial accomplishment for 2021 is that by next month I will have met my emergency savings goal. For the last three years, essentially since I started my job, I’ve been saving a little bit each month. I’ve been putting it into my online savings bank account, which is separate from my checking account. And over the last three years that balance has grown and grown and I’m happy to say, by next month, I’ll finally have hit my goal. Thank you. Bye.
Sean: Great job, Joseph. I think your win really shows how long it can take to accomplish some of the things that you want to do with your money but how rewarding it can be to finally do it.
Liz: And as Joseph’s experience shows, emergency funds can take a while to build. It can take years and years, and that’s why we don’t recommend putting everything else on hold while you do it.
Sean: Mm-hmm (affirmative). If you just do a little bit at a time, eventually you’ll get there. That’s all you need to do, just multiple things all going at the same time. Multitasking.
Liz: There you go. Multitasking, that’s our favorite word?
Liz: OK. So I think we have one more.
Sean: This is our final win.
Listener 7: I am so happy to say that I built a whole lot of financial literacy this year. 2021 was the year of me finally having an emergency fund — woo-hoo! — paying down credit card debt, and I also opened up a 529 for my toddler. Thank you so much for what you do and happy almost-2022.
Liz: Oh, I am so thrilled to hear about the 529. Saving anything for college is a huge win and you’ve got a great start for that toddler.
Sean: What I really like about this lesson, and part of why I put it at the very end, is that it encapsulates a lot about the wins we heard this year in this episode. Our listeners saved some money, they took advantage of the right financial products to set their family up for long-term success — in this case, it’s a 529 account — and paid off some debt. I do wonder if they have that emergency fund in a high-yield savings account, which even though we know they’re not super high-yield nowadays. But anyway, happy almost-2022 to you as well, listener.
Liz: And that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-NERD. You can also email us at [email protected]. Also visit nerdwallet.com/podcast for more information on this episode. And remember to subscribe, rate and review us wherever you’re getting this podcast.
Sean: And for the last time in 2021, here is our brief disclaimer, thoughtfully crafted by NerdWallet’s legal team. Your questions are answered by knowledgeable and talented finance writers. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz: And with that said, until next time, turn to the Nerds.