#48 Ask Drunken Money Anything

Path to Progress with Paul Heintzman and John Ackerman

For this episode, we wanted to mix it up and let you, our listeners, ask us any questions you had about personal finance. Ask Drunken Money Anything:

1. What is our best advice for planning ahead for a large purchase (such as a vacation), without sacrificing going out to the bars and making fun purchases?
   • This is the reason we created the "Six Tenets of Drunken Money".
   • Make sure you know exactly how much money you need to reach your goals, and then use the 50/30/20 rule of budgeting to achieve your goals.
   • Remember to always tell your money where to go, don't look back at the end of each month and be surprised by your purchases.
     • There are a lot of great free apps to help with budgeting, and you can create a separate savings account for your large goal so you don't spend the money you've saved.
   • Cut back on unnecessary purchases (such as Spotify or Netflix subscriptions) in order to achieve your larger goals.
2. How large of an emergency fund is necessary for a millennial?
   • The general rule for emergency funds is to have 3-6 months of savings in case you lose your job.
     • The tougher it is for you to find a new job and replace your income, the larger your necessary emergency fund (a teacher may need a larger emergency fund in the middle of the school year if they wouldn't be able to get a comparable position until the next school year).
   • You can also keep separate emergency funds for unexpected events (such as an extra $1,000 set aside for a future car breakdown or money in a Health Savings Account for medical emergencies).
   • Keep emergency fund money in low-risk savings accounts you can easily access in case of emergency. Do not invest emergency fund money in stocks or other riskier investments.
     • This is money you do not want to decrease in value, and you want to make sure you can easily get to it (don't invest it in real estate or long-term Certificates of Deposit).
3. What advice do you have for a student to save up income while in college?
   • Get a job! Both of us had jobs in college, and you most likely have free time between classes and on weekends to work (and all summer!).
     • You generally will have very few expenses while in college, so you can really save up your income (also - drink at home and eat at school to save money).
   • Make a budget! Do not blow the money you are making.
   • Invest as much as you can - the biggest advantage you have is time (see our Compound Interest episode).
4. What is Vanguard? Should millennials invest in Exchange Traded Funds (ETFs) or Mutual Funds?
   • An ETF is a slice of a larger pool of stocks you can purchase (for example, you can purchase an ETF that mirrors the S&P 500 index fund for a fraction of the cost of purchasing all the companies in the S&P 500).
     • Many investors love ETFs because they have very low fees.
   • A mutual fund is a group of investments that is managed by a professional.
     • While many investors also love mutual funds, the fees are much higher than ETFs and will add up substantially over time for millennials investing in the long-term.
   • Check out our episode all about investing with Keith Blakely.
5. What are the advantages and disadvantages of renting vs. purchasing commercial real estate?
   • When purchasing real estate, lenders are going to look at your profitability (do you make money?), your income trend, and your collateral (what will you give them if you default on the loan?).
     • They'll also look at your personal financials to make sure you don't have too much debt, you have a large enough down payment, and have enough cash flow to pay off the loan.
   • For tax purposes (for businesses):
     • Renting:
       • Tne entire rental payment each month is deductible on your taxes.
     • Owning:
       • Only the interest paid on the loan's monthly payment is deductible (you cannot deduct the principal portion of the loan payments).
       • You will also be able to depreciate your building over time (commercial real estate can be depreciated over 39 years).
       • You would also want to look at your cash flow and make sure you can easily make the monthly loan payments if you decide to purchase a building.
   • For tax purposes (for personal):
     • Renting:
       • You can't deduct any rental payments.
     • Owning:
       • If you itemize your deductions, you can deduct your mortgage interest on your principal home.
       • You cannot take any depreciation unless you use your home for business.
   • Also, don't forget, when you purchase real estate you are building equity over time, and can eventually sell your building for (hopefully) more than your original purchase.

Special shoutouts and show notes:

• Betterment
• You Need a Budget (YNAB)
• Vanguard

Enjoyed this episode? Check out one of our first episodes, Dissecting Dave Ramsey's Seven Baby Steps.

Have any topics you want to be covered or amazing people you'd like us to interview? Let us know! You can email us at [e-mail]. You can also find us on Facebook, Instagram, Twitter, and Linkedin. Please be sure to subscribe to our weekly mailing list at drunkenmoney.com/subscribe.