Is the 30% rule for housing costs still a wise guideline today?

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In a world where crushing debt keeps you trapped, where living paycheck to paycheck has become your new normal, and where the dream of retirement seems impossibly out of reach, there's hope. Join financial evangelist Ralph Estep Jr. A man who's walked through the fire of financial failure and emerged stronger on the other side.

Welcome to Ask Ralph, the show where real world experience meets biblical truth to break the bondage of financial despair.

Get ready to take control of your money, break free from the financial stress and align your resources with God's purpose for your life. This is Ask Ralph with Ralph Estep Jr.

Ralph
00:00:39

Welcome everybody on the show today. We're going to answer some quick questions. Are you struggling to decide if the 30 percent rule for housing costs still applies today? Or perhaps you've found some savings bonds and you need to understand the taxes involved? And are you looking for the best high yield savings account to maximize your returns?
Well today on the Ask Ralph show, we're going to get into these crucial questions that can make a significant difference in your financial journey. So stick around to find out how to navigate these complex financial situations with confidence and faith. Well, let me grab here and welcome Craig Van Slyke to the show.

Craig, thanks for joining us again today.

Craig
00:01:19

You are most welcome. It's good to see you again.

Ralph
00:01:22

Craig is going to tell us ahead of time. Craig is down in Louisiana and he is experiencing some weather today. So he's going to be with us. We're going to keep our fingers crossed, right, Craig?

Craig
00:01:32

Yep. Hopefully. Hopefully.

Ralph
00:01:34

So let me tell you about Craig here. Craig, if you're interested in his podcast, you can go to aigoestocollege.com. That's where you can reach Craig. Well, I thought we would start with our Bible verse. So let me get right to that. And our Bible verse today comes to us from the book of Luke chapter 16, verses 10 and 11.

It says this. And I thought this was great for today's show. "Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. So if you have not been trustworthy in handling worldly wealth, who will trust you with true riches?"

I thought that was a great one to get started today because this show is all about being faithful and being diligent with our financial decisions. And as I always like to start the show, I just want to thank everyone for joining us. I am truly grateful for the wisdom and the experience the Lord has given me through my years of accounting.

And it's my honor to share that with you today to help you navigate your financial journey with faith and confidence. So Craig, that's a, that's what we're fixing to talk about today as they say.

Craig
00:02:38

Yes, those are good topics. A couple of those I've struggled with myself. So I'm glad to see these.

Ralph
00:02:44

You know, if you're a human like me, you're going to struggle with those things.
And I just want to tell everybody, the studio that you're seeing, man, it's a work in progress. So if it sounds a little strange, I've got everything off the walls cause I'm going to be doing some painting tomorrow and I'm still trying to figure out these lighting. Like I got this, I got this weird shadow on the one side, but it's a work in progress. So, but I want to thank everybody for the support.
We coordinated our outfits though

Like that wasn't even planned. Like Craig and I didn't talk about this ahead of time but we are definitely blue on this Tuesday. Well Craig, let's get right to our first question.
If you think we that'd be good so this one comes to us from Sheila and this is a short question, but it's blunt, right? And that is, is the 30 percent rule for housing costs still a wise guideline today? Now you might be wondering, what are you talking about? Well Sheila, first thing I want to say is thank you for your question.

And because I totally understand how challenging it can be to determine how much of your income, and that's what we're really talking about here. How much of your income on a monthly basis should go towards housing, especially when we're in these, you know, I'll say them difficult economic times. And listen, I've been doing this,

I'm not a spring chicken. I've been doing this for 30 years. And I've seen this rule change over time. I remember when I bought my first townhouse, I think I was about 22 years old. And I remember meeting with the mortgage officer and the mortgage broker and the real estate agent. And they said, well, you got to really watch because that front ratio, as they call it, needs to be no more than 29%.

But I want to break that down today. So let's talk all about that. So I remember I worked with a client named Linda several years back and Linda lived, and this is one of the things I'm going to talk about today when I answer this question. This is a, it depends kind of question because it depends where you live.

Now, this particular client I work with, Linda, she lived in an urban area, which was a high cost area. So to think that she was going to get her housing cost at 30 percent or below was really a tough situation. So we had to use what I call a more flexible approach and that's really what I want to talk about here for a minute.

You've got to look at your overall financial goals. You got to look at your overall debt burden, and then you also have to think about future projections for your income. Those are the things you want to factor in. So, you know, like I said, the things you really want to focus in is that geographic, what I call geographic variability, because it depends where you live.

You could be living in a city where, for example, Craig, and I think you probably understand where I'm going with this one. If you live in New York city, the cost of living there is a great deal higher than where I'm at. And I'm just about two hours South of the city out here in Middletown, Delaware. But it depends where you live.

And if you live in a high cost area, that 30 percent is going to be pretty tough. It also depends on your income level. You know, if you've got a higher, a more stable level of income, then you might feel more comfortable exceeding that 30 percent without worrying about the financial impact of that. But now, if you're one of these people that has very variable income, I just had a rhyme there almost very variable.

We'll use that one again later, but if you have variable income, let's say you're in the sales trade or your income seems to go up and down. That's when you might want to stick a little hard and fast at that 30 percent rule. But in my professional opinion, I'm sorry, go ahead, Craig.

Craig
00:05:57

Sorry, I'm sorry to interrupt. So 30%, is that 30% of what you take home or is that 30% of your salary?

Ralph
00:06:05

So that's 30 percent of your gross income. So that would be the starting point. Yeah, because listen, and it depends on your taxes as well. Craig, that's what you're alluding to there. That's a very valid point, but no, what I'm talking about there is this is their traditional, what the mortgage brokers would call like that front ratio.

The sage advice was your front ratio can be no more than 29%. What am I talking about there? So when you were applying for a mortgage, the mortgage company would look at your income and they would say, okay, Craig, your income is, let's say $10,000 a month, which is a big number, but let's just say $10,000 a month.

Cause I want to do easy math cause I don't have enough fingers and toes to count today. 30 percent front ratio, then your mortgage payment can be no more than $3,000 a month. And then they have what's called the back ratio. The back ratio is what we add your mortgage payment in and your car loans, any personal loans, any other debts you have.

And that one generally was about 42%. So you had sort of these goalposts for lack of a better term. You had this 30 or 29 percent they used to call it. 30 percent or 42 percent on the other side. But again, it really depends on your situation and why this is an issue is as we're seeing the cost of housing go up, as we're seeing the cost of borrowing for housing go up, those ratios are getting pushed a little bit.

So you've really got to take a look and say, okay, what is your overall financial position? If you're just starting out, I think it's really dangerous to go over that 30 percent because you can find yourself in a world of problems. I look back to 2008, for example, Craig, I don't know what it was like where you're at down in Louisiana, but around here in 2008, I mean, you could get a, you could get a mortgage loan if you had a pulse.

I mean it, that was all it was a sign here and you got a mortgage loan and the ratios were out the door. They didn't care. You just, it was what was called stated income. So you could say, I hear by state, my income is this. And that was what the mortgage company went by. Go ahead, Craig, you had a comment.

Craig
00:07:56

Less charitable, they were called liar's loans.

Ralph
00:07:59

Well, yeah, I mean, I think that's a good way of looking at it. But what it did, and I'm worried about we're going down this same path right now. What it did was it put people on, my grandmother used to say they put them in the poor house. But it really did because I looked around and there were people in what I called these McMansions who had houses
they couldn't really afford. They couldn't afford the heat and cool them. I remember at the time there was a lady that we partnered up with, she had this thing called the welcome wagon. And what she would do is when somebody new moved into town, she would go and meet with them. She'd share all the people she knows, the professionals in the community, the contractors, the accountants, the lawyers.

And what she said to me, her and I were meeting one day and she says, Ralph, I go into these massive houses. And she said, you have to wear a coat because there's no heat in the house. They have very sparse furniture. And that's what this all comes down to is how do you decide what to do? So I'm going to give some, so, so my big overall takeaway, I probably didn't get to this yet, but my big takeaway is this.

It depends. You've got to look at your personal situation. So Sheila to really answer your question, it depends. Are you stable in your income? What does your overall financial position look like? And what are the economic realities of where you live? Like I said, if you live in New York City, I think you're going to have a hard time staying under that 30 percent housing number.

And the other thing you got to look at as well is, you know, what do you have in your savings account? What is your emergency fund look like? That's all important part of this discussion. So let me get, I'm sorry, Craig, you had something to say.

Craig
00:09:27

That's a huge piece of it. You know, if you buy, like my first house was a brand new house.
It had a warranty on it. Everything was brand new. You know, there were no substantial repair bills for a very long time. The house we're in now was not that old, you know, 25 years old or so. But you wouldn't believe how much money we put into it. And so that's a big difference. You know, if you're right at that 30 percent and you've got other bills and maybe some kids and other responsibilities, you know, and you buy an older house, that could be going down a bad path, I think.

Ralph
00:10:05

Oh yeah. And you just alluded to something a lot of people don't think about. And that is, you know, I remember going into my first house. Man, I was borrowing from this one and that one to try to just get to the mortgage plate, you know, to get the settlement done. And I remember it wasn't a week or two after I went to some, and like I said, I'm like 22 at the time, my air conditioner died.

I mean, it's the middle of July. And I mentioned this on the show a couple of weeks ago. And I said to the guy, I said, okay, well, how much is that going to be? He's like $5,000. Like, where am I going to find five grand? So Craig, I completely agree with you. So if you're already pushing it, then look for those home warranties.

Make sure you've got a little bit of emergency savings because that can get you in trouble in a hurry, as they say.

Craig
00:10:46

Well, the other thing, there's a psychological aspect to this as well. I might, I've mentioned my older brother who's very shrewd financially before on the show. Back when I was in my 20s, I thought about buying a condo.
I was living in Atlanta and I could afford it. But he said, man, you're going to grow to hate that condo because you're going to have no money to do anything else. And I was in Atlanta in the 1980s, which was a very fun place for a 20 year old to be.

Ralph
00:11:15

I can only imagine.

Craig
00:11:17

And fortunately I was smart enough to listen to him and so I didn't buy the condo, but he's, even if you can afford it, if you're not willing to give up other things, your social life, your travel, whatever.

Or if you're really the type who's going to be nervous about being right at the edge financially, you might want to think twice. You know, a house is a wonderful investment, but not if it makes you crazy.

Ralph
00:11:42

And I think you allude to a very big part to that, and that is two things. Number one is there is that emotion to it.

You know, you go and visit the house with the realtor and like, Oh, I got to have this. You can picture the this, and you can picture the family and all this kind of stuff. But the economic reality is what you're getting to Craig is yeah, but what is the sacrifice you're going to make? You know, are you not going to be able to eat out?

Are you not going to be able to travel? Are you not going to be able to furnish it? All those things have to come into that. So that's where, when I talk about sort of the, the questions I would work through is you know how does your current housing costs compared to that 30 percent rule and what adjustments can you make based on your financial situation?

Again, it depends. It depends on what you bring to the table. You also have to look at your longterm, your short term goals, and how does that housing fit into it? Because like you said, Craig, had you bought that condo, you would have been scrimping and saving to make it work and you wouldn't have been able to enjoy what we call the acumen of life.
You know, what else would you be able to do? Because I'm just looking at our shirts, Craig. And I think they are absolutely identical. They're close.

Craig
00:12:47

They're close.

Ralph
00:12:48

It's hilarious. It's a distraction to speak.

Craig
00:12:50

You’ve hit on something else that's really important that actually I lived through.
So my, the company I was working for went under, and I was able to start a business in Orlando, moved Orlando and start a small business. Well, if I own that condo, you know, after just a couple of years, you know, you're going to take a bath on that thing. And so you really give up a lot of flexibility.

Now, if you're stable, you know, you're going to stay in the area. You know, there's no question about that. It's a different calculus. But if you're, you know, if you're still trying to figure out where you want to settle, or you like to move around, you know, a house can be a pretty big albatross around your neck.

Ralph
00:13:33

Absolutely. And you don't know what the future holds, and that's where if you're going into it, you're maxing out that loan, and then something happens. Like you said, you get downsized. Or maybe, you know, I've had situations where clients have lost a mother or father and they needed to move closer to their remaining parent because they needed to help them out.

And all of a sudden they're locked into this house. Or maybe, I had, I talked about this on the show, it's been a couple of months ago, I had a client that had bought this beautiful place in Tennessee. He was all excited, he rolled a bunch of money into it, built a big room, put in a koi pond, I mean this place was fantastic.

He dropped like a hundred grand into this house and all of a sudden he got an opportunity to move across the country for a great new job. And he lost just about every dollar he put into what I call the over improvement. So you got to be really careful of that, Craig. And like you said, I mean, it's that, I just feel like that you got to really pay attention to it's not just the short term goal. It's that intermediate and long term. And it's so easy to make that, that rash quick decision. But then you rue the day when something else happens down the road.

Craig
00:14:38

Absolutely.

Ralph
00:14:39

Well, let's get to our second question. Our second question comes to us from Gary. And I thought this was a great one.

This is what we call found a money. So Gary writes this, he said, I've found 12 EE savings bonds, each originally valued at $5,000 after cleaning out my deceased dad's house. So Gary, first thing I want to say, we are very sorry about the loss of your dad. Now, but moving on, what he said is they mature in 2036.

So they're not quite matured yet and their current estimated total value is around $45,000. So he found this some found money here. I think it's fantastic. He says I've got paperwork confirming that I am the beneficiary and the last living family member. He plans to transfer these bonds electronically and cash them out in 2025.

Here's his question. How do I calculate taxes on the interest earned? Specifically, can I consider the bond values at the date of my father's death as my tax basis and then pay tax only on the increase in value from that point? Well, let me just say again, we are very sorry about your loss, Gary, but this is a great question.

And Craig, it's one of those questions I don't get very often in my practice. So when I saw that, like, this is fantastic, but like I said, losing a loved one is difficult. And then you've got to navigate these financial complexities and they can be overwhelming. So we want to start off by looking at exactly what we're talking about here.

And this is where it gets a little daunting in the taxation process, but here's basically how it works. So one of the things that Gary mentions here is that he's thinking about that stepped up basis. Now, if for those of you that don't know, stepped up basis basically means this. When someone passes away, You get the, what's called a stepped up basis, which basically means this, let's use a simple example.

Let's say you inherit a house from your mom and dad. Okay. Your mom and dad pass away and you inherit this house.

Ralph
00:16:28

Well, they may have paid $50,000 for this house 40 years ago. Well, the way that it works is on the date that they pass away, I'm just making an assumption that they both passed away or whatever the last one was. Whatever the fair market value of that asset was on the date of the last parent's passing, that's what's called stepped up basis. So now all of a sudden that house that they paid $50,000 for, Hey, it could be worth a half a million dollars at this point. So now your basis and why this is important, I'll mention that in a second is your basis is now $500,000. So if you turn around and sell this house, you get, you have very little capital gain because now all of a sudden, cause if it's worth $500,000, you sell it the next day, guess what?

You're probably not going to earn much, but here's the problem with that. Had you not gotten that stepped up basis. Your capital gain wouldn't have been zero. It would have been, let me do the math here. $500,000 minus 50, $450,000. So that's why this huge, but here's the problem, Gary. It does not work that way with these bonds.
So this is the issue with this guy, and that's why it gets a little complicated. So you can't just use the bonds value at the date of your father's passing to get that new tax basis, because here's the problem with these bonds. And this is where you got to decide how you want to handle this.

But there are really two ways that can do this. And I'm going to talk about a client that I worked with Craig, a couple of years ago named Mark. And he had a very similar situation. He had inherited these bonds from his grandmother. And again, he reached out to me, he said, Ralph, and like I said, I've only handled a couple of these in 30 years of doing this kind of stuff.

And he said, Ralph, how do I handle this? Well, we worked through it and we realized that the interest earned on the bonds was actually taxable from the date that his grandmother had bought them because she never claimed that income. So Gary and everyone else, listen, here are your two options. These are really, and there's really just two, and this is the simplest option.

I'll call this option A. If your father didn't report interest annually, which he probably wouldn't have because his tax person, or if he was doing his taxes would have said, Hey, why are you claiming that interest now claim that interest down the road when it comes due, then what happens is you're going to have to claim that interest in the year that you redeem those bonds.

So basically what I'm telling you is for 2025, You're going to have cap or you're going to have interest on those bonds from whatever the interest has accrued from the date that your father bought them, not the date he passed away. Now, treasury direct, like you mentioned you're going to go through the online site through treasury direct.

They're going to issue you the 1099, but just be prepared, Gary. That 1099 is going to be a whopper because whatever the interest was earned from the date that your father bought those bonds, that's what you're going to pay on tax. Now there is a more complex approach to this. And this comes down to a little bit of a nuanced thing, what you could do.
And Gary, I don't know the situation completely, cause you didn't share that with me, but you could choose the report the interest accrued to the date of your father's death on his tax return cause he's going to need to file a final tax return. You didn't mention when he passed away. I don't know whether that was a year ago and you just now found these and the tax years already came up.

But one of the things you could do, you could file now, you could also amend the return if you've already filed one. So you could go ahead and claim the interest then from, let me just talk everybody through this. So dad buys the bond and the interest accrues till dad's date of death. What you could do is you could say, okay, on dad's final tax return, I'm going to show all that interest that was earned from the date of purchase up through his date of death.

You could do that. Now you might be asking, why would you do that? Well, maybe your father had very little income. If he had very little income, chances are that might be a better tax strategy cause maybe you've got more income, maybe you're working, maybe you've got other things, investments and all that thing going.
So that's an option that you can look at, but that gets a little more complicated because now, you're going to have the dad's   tax return.  or maybe they've already been filed  you've got ammended tax  return . You've got    to look at what is the best for you.

I'm going to say this, and I'm going to be very bold in saying this. This is not a do it yourself weekend project. This is something you want to sit down with somebody and decide what's best for you. Run the numbers, have somebody look at both tax strategies. I just recorded the show this morning that I'll play next week about everybody assumes if you're married, you should file a joint tax return.

Well catch next Tuesday show because I'm going to talk about when you might not want to do that. Well, this is the same situation and a little bit different though, but you still have to make a decision of what is in the best interest of this particular situation. To be blunt, the easiest path of least resistance is to just put it on your tax return.
And, you know, let's say, suck it up buttercup and pay the tax.

Craig
00:21:11

But it's worth two or three hundred dollars to pay a professional to figure out, you know, if it was one savings bond worth $5,000, it's not worth doing, but you're talking about a lot of money here. Oh, absolutely. And so I think it's probably worth consulting with somebody to see which way is better.

Ralph
00:21:27

Yeah, because I'll give you a scenario. Let's say that your father was in poor health right before this. And let's say that maybe he was in nursing care and he had a ton of medical expenses so that he's going to not have very little or maybe no taxable income. Well if you throw all, even if it's $40,000, which is not going to be, but you understand what I'm saying. Even if you've a lot of interest back on dad's tax return, maybe he pays 10 percent as income, whereas maybe you're in the 22 or 24 tax rate. So yeah, Craig, you're absolutely right. Spend a couple hundred dollars or for an hour to a consultation work, a consultation and find somebody that understands this and run both of those scenarios. Absolutely. And the other thing you got to do is maybe look at your dad's tax return because maybe he'd been planning this and he was claiming that interest every year.

That's a possibility. But you're going to have to go find those things. So that's really what the key is to this. So if I'm going to ask the big questions, Gary, here's the takeaways from this. You know, have you confirmed whether your father reported the interest on these bonds annually, he probably didn't.

If I had to guess, like, I don't know the complete situation, but that would be sort of outside the usual in this. And then you're going to make a decision, you know, go like Craig and I said, go talk to somebody and find out what is the best tax strategy for your particular situation. And then just make sure you report it correctly on your tax return.
I really don't have a lot more to give here, Gary. Unfortunately, I think you were hoping that you were going to get that stepped up basis, but in this case, you just don't get that benefit. And really what it comes down to, and I'll get to you in just one second, Craig, I see you got a question or a comment, but what it really comes down to is that the IRS never taxed the interest on this at all.

So they want to get their pound of flesh. Go ahead, Craig.

Craig
00:23:12

Well, so I have two questions and then we have a question from Jeff in chat as well. So, is there, does this apply to all bonds or is this specific to U.S. federal savings bonds?

Ralph
00:23:25

You know, I didn't really get into the details on this one, but this one is just the U.S. savings bonds because of the way the interest is reported. Because oftentimes the bonds you're talking about, you're paying tax on those on an annual basis. They're being reported on what we call a 1099 dividend form or 1099 comprehensive, they call it now. So that's a very good point, Craig.

This is one of those little nuance things where, and if you think about it, it's kind of the point of the savings bonds. You buy them for their face value at about half of what that face value is. And the idea is that grows interest free, interest free until you have to cash them in and then you pay the tax.

Craig
00:24:06

Right. Right. But it's worth, it's worth noting because I know a lot of older people hold a fair amount of bonds. And if it's a private bond, if it's not one of these federal bonds, then the likelihood is that they've been paying taxes on it all along.

Ralph
00:24:21

Oh, absolutely.

Craig
00:24:21

Which means you get that stepped up basis.

Ralph
00:24:23

And that's again, that's where you would have that stepped up basis because what would happen is as they're paying the tax on that interest, that's adding to that basis.
So this is, again, I hate to say it this way and I'm not trying to take money out of people's pockets, but this is where spend some money, go meet with a professional and understand it completely so that you don't make a, say a bonehead decision. I know that's kind of a harsh thing to say, but you don't want to make a mistake

Craig
00:24:49

Well, and one other reason is there might be some way to shield some of that income. Can't you shield part of it for educational expenses?

Ralph
00:24:56

Yeah, they're, they're very well could be. Yes, absolutely. That may be an option as well.

Craig
00:25:01

You know is our friend Dave Jackson says you can pay in time or you can pay in money. And this is one of those where you'd, you'd make yourself crazy trying to figure it out yourself. Go to a professional.

Ralph
00:25:11

Exactly.

Craig
00:25:13

Jeff has a question in chat.

Ralph
00:25:17

Let me see if I can make this work, Jeff. Jeff, here we go. Okay, so Jeff says, What would you do when you're, okay, what should you do when you're close to paying off your home?
What should you do with the new income? Save it? Reinvest it back in the house? Would love to know. Well, here's my answer to that, Jeff. And I'm going to say, it depends. So, and I'm not being a smart alec and saying that way, but, but here's my thought. And Craig, I want you to chime in as well. So you're close to paying off your home.

And what's funny about this, Jeff, I'm going to take a little sidetrack here. I had a client in the other day and they said to me, Ralph, we're just about ready to pay off our home, but I think we're going to go buy another house because we need that mortgage interest write off. And I said, wait a second. And I had to have this discussion and Jeff, I know that's not what you asked, but I'm going to go there in a second.

But I said to them, wait a second. I said, you don't need to pay mortgage interest. They said, Oh no, no. If we don't pay mortgage interest, Ralph, we're not going to have any write offs. So Craig, I had to have this discussion with them. And I felt like it was like, I felt like I was pulling teeth. You know what I'm saying?

Like, here's the deal. I'm going to give you a dollar. Okay. Here's a dollar. I want you to give me 30 cents back. Right. I still spent a dollar, so I'm still out 70 cents, even if you give me 30 cents back. Well, that's the whole point. And that's not what you asked Jeff, but it kind of goes along with that.

So what you're really saying to me is now you have found money. You've got this what you call new income because you're not making that mortgage payment anymore. So I think you really have a couple options, Jeff, and I'm going to tell you what I would do in this personal situation. Number one, I would say, what does your emergency fund look like?
Have you got a good emergency fund of six to 12 months worth of emergency money? That's where I'm parking some of that money right away. I'm also going to look at your debts. Do you have any credit card debt? Do you have any debt that's earning less or costing you more than what you'd be earning by investing is in somewhere.

And then you ask a question about, you know, investing it back in your house. Now Jeff, you and I know each other and we're exactly the same age. So one of the things that you might want to consider is how do you prepare your house for that time when you're not going up? I don't know what your living situation is, Jeff, but you know, do you start to prepare your house with, and this is going to sound kind of funny, but walk in tub, do you start looking at, you know, what does the accessibility of your house look like?

That may be a very good reason to reinvest in your house. Plus the truth of the matter is, you know, you got to make that decision. Like Craig talked about a little while ago, we talked about that 30 percent deal. You know, is this going to be your forever home? If this is not going to be your forever home, then I would say, don't invest it back into your house because you're not going to probably get it back if you have to sell the house quickly. Craig, what are your thoughts on Jeff's question?

Craig
00:27:59

I mean, I totally agree with everything you've said, although I would add one thing and this is a struggle for my Scottish soul. You know, I was raised to be thrifty in that regard, but it's okay to enjoy money. You know, if you have your emergency fund, you know, set up and all those kinds of things, you don't have a lot of high interest debt, you know, if you want to take a trip to reward yourself for paying off your house,
take a trip. The other thing is, around the house, if there's something you really want to do to your house where you're going to enjoy it more, don't focus entirely on whether or not it's going to pay off all it back end. Like we need to do our, redo our hot tub outside. There's a long story there that I won't bore people with, but it involves a cat and a sledgehammer.

But if we want to redo that, we're never going to get that money out of it. But we've got another seven years in this house. You know, we can go in and enjoy that hot tub in the meantime, or in Louisiana during the summer it's just a tub. It's not a hot tub

Ralph
00:29:11

You don't need to heat it up. It's hot enough. Right.

Craig
00:29:13

But my point is that if there's something you know you want to redo the kitchen, you want to redo the bathroom, it's okay to enjoy that but do it now. Don't wait until right before you sell the house because then you're still not going to get your money back. And you're not going to get any enjoyment out of that improvement.

Ralph
00:29:30

No, and that's the truth and it's funny you say that Craig and I want to park here for a minute or two. I counsel clients all the time that are so scared to spend money.
They're so scared to hear you know, they're so scared to make those, you know to enjoy their lives. And here's the thing. It's going to sound like a very dark thing to say. What are you saving it for? I had a client the other day, her and I were chit chatting and she goes, Ralph, she says, my kids are pretty well off.

I'm not worried about leaving for them. She says, do I need to like, make sure that I'm leaving this next day for him? I looked her square in the eyes. I said, Craig, I said, no, go enjoy yourself. So she says to me, she says, this is great. She goes, in fact, she says, we've already started to do that.

They're going on a two week safari. And she's like, this is like the trip of our lives. And we're going to spend a lot of money on Ralph. She says, look, she says, this is what I want to do. We're able to do it now. They're both retired. They have the capacity. They have the physical ability to do it. And Craig, you nailed it because what are you going to do?
You're going to let it, you're going to put it on park at somewhere. And then your kids or your grandkids are probably going to squander it away. I know that's a dark thing to say, but it's just true. Enjoy your life. And i'm just going to mention what Jeff said and Jeff's got another point. He said it sounds like I'm so old.

I need a walk in tub. Hey Jeff, let me just tell you my friend. I got the walk in shower, you know with the little ledge you can step over because and preach you on your foot, I'm not even going there Jeff, but now but Craig I think Jeff's got a follow up and he wants to hear that. Let me pull this in here.

It says I want to hear the cat and sledgehammer story. So Craig you're on deck my friend.

Craig
00:31:04

We have a little gray cat taz. That's one of those cats that just gets into mischief. And twice she got between the hot tub and the brick surrounding the hot tub. First time she was able to get out, second time she wasn't, and I had finally had enough so I grabbed a sledgehammer and broke the brick around the outside of the hot tub in order to get that little cat out.
We were really afraid she was going to end up going into the pool, but, or not be able to get out. So that's why we need a new hot tub. Combination of a little cat and my temper.

Ralph
00:31:39

That is, listen, I know how that temper goes. Correct. I totally.

Craig
00:31:43

It wasn't really, to be honest, it wasn't temper. It was just. I wasn't going to let that cat die inside that hot tub.

Ralph
00:31:49

No, I understand. That makes sense. Well, Jeff. Hey, thanks so much for the question. We appreciate the, we appreciate you being in a chat. Well, let's get to our third question.

Craig
00:31:57

And for the opportunity to tell a critter story. I always enjoyed those.

Ralph
00:32:00

Oh, I hear that. All right. So now we've got our final question, at least a question that was sent over ahead of time. And that comes from Luis and Luis writes this. He says, I'm a big fan of your show. Well, thank you, Luis, you and two other people. Now I'm just being funny, but thank you Luis, I do appreciate that comment. And love the insights you provide on personal finance.
Well, that's why I do it. So Luis says, I'm currently looking to open a high yield savings account and would like to hear your thoughts on what options are the best for maximizing those returns. Are there any specific features or banks you recommend based on current rates and overall reliability? Craig, I thought that was a really great question.
The thing I really like about that question is Luis is starting to think beyond that simple savings account. He's moving past that thought of, you know, not saving money. He's thinking, Oh, how can I, how can I maximize the savings? And I honestly, right from the jump, Luis, I'm going to tell you, I think that's a smart move, especially if you're looking to grow your savings safely and steadily, you know, you're not betting it all.
Oh, I got a funny story. I got to tell this one, Craig, I got to tell you. So anyway, so you're going to laugh at this one. This is one of those like Ralph life things. Now last Saturday had to work as I had clients coming in on Saturdays would be in tax season. So my youngest son and my wife went to the local down in Dover, Delaware.
There's a Bally's casino. Well, that's not why they went but they were having this chocolate festival and at the chocolate festival was some of the original cast of Willy Wonka. Okay. So my son got to meet Mike Teevee. He got to meet Charlie Bucket. He got to meet I can't remember the, one of the ladies that was in it.
I can't think of her name and then he got to meet a Oompa Loompa. So you got to picture this for a second. I don't have the picture to show. My son is 6' 7". Okay. We call him Sasquatch. I mean, he's a big kid. Full like ZZ top beard. He, and I'm sitting at my desk. I'm meeting with a client and up on my screen pops a picture of my six foot seven son and about a four foot tall Oompa Loompa.
So anyway, that was hilarious. But why I tell this story. Okay. So they're at this casino. My son had never been in a casino before. He's 23 years old. And he said, we went into the casino dad because we were going to just, we wanted to walk around and take a look at things. And this is going to make sense here in a second
Luis, if you're listening. So anyway. My wife and him walk up to the roulette table. And like I said, he never played before. My wife's lucky number is seven. So she says to my son, she says, his name is Gage. She says, Gage, look, whatever you do, I want you to put money on number seven. So my son, you know, he's taken in by the bells and the sirens and the color, you know, all the sounds and all this kind of stuff.
So the guy spins the ball around, it's going around. My son had put his bets down and guess what hit?

Seven. So my wife is jumping up and down. She's having a great time. And everybody's looking at her like this lady's lost her mind. She looks down at the table and guess what my son had forgotten to do?

Craig
00:34:47

Put the bet down.

Ralph
00:34:48

He forgot to bet on seven. He bet on eight and he bet on 12. Now, Luis, so I heard about this story afterwards, Craig, and I'm like, Oh man.

So the pit boss says to my, says to my wife, I bet your son's walking home today isn't he?

Craig
00:35:02

Well, you did avoid the whole thing of whether or not he was going to have to split the money with her.

Ralph
00:35:07

So I couldn't go there because I wasn't sure what was going on between, you know, mom and son in that regard, but it was really funny, but it was cool.

They got to meet the original cast members of Willy Wonka. And I apologize. I can't think of the lady's name. Anyway, but anyway, it was really kind of cool, but what's interesting to me is, and our reason I tell this story is, you know, you could go and as Luis, this is the whole point of this. You could go and put all that money on black, you could put all that money on seven, but Luis, you're making a better choice.

And the reason I went there is you've decided that you want something that is safe. You know, if you're going to go to put money in a savings account, it's safe. That's the whole point of that. So asking a big picture question, I'm a big fan of credit unions. That's just, you know, I used to run a credit union and that's my bias, but to be blunt with you, there are some great banks out there that do it, but you just want to pay attention to, you know, what the, what their savings account is.

You want to pay attention to, you know, what are the competitive rates. And the thing is, like you said, I mean, you know, also, by the way, you want to look at this too. And Craig and I actually, we had a discussion about this many months ago. I don't know if you remember, Craig. You were talking about moving from bank to bank and the incentives.
So be careful of that too, because sometimes they'll have an incentive rate that all of a sudden after three or four months, well, that rate is gone. So also take a look if there are any monthly maintenance fees, or if there's a minimum balance requirement, all those things make a big difference.

Craig
00:36:29

There's a big one that got me. So we have a local bank here that I really like a lot and they were paying 7 percent on the checking account up to, I think up to $30,000.

Ralph
00:36:41

That's a big return.

Craig
00:36:42

Yeah, it is. It is. And they have a little bit lesser like, like four or 5 percent on a savings account. Well, you have to have so many debit card transactions in the month.
I think you have to, you may have to have a direct deposit, but I had that already. Anyway, I'm not a huge debit card guy. I like the protections of a credit card.

Ralph
00:37:03

You and me both.

Craig
00:37:05

So I'm keeping track of these and then one month we don't get our interest. So I call up the bank. What's going on? Let me check into it.

Well, they had a $10 minimum transaction fee for the debit card transaction account, and I was one short. And it cost, you know, it cost me, what is it, 75 bucks, 80 bucks, something like that. But really pay attention to that. They often have debit card transaction requirements and direct deposit requirements in addition to, you know, the teaser rates and that sort of thing.

So you really have to watch out for all of those.

Ralph
00:37:44

Yeah. And you had to be going in with eyes wide open. The whole point of that, the bank is trying to get your business. They're trying to get your checking business. They're trying to get your credit card business. They're trying to get all those things. So it might look great

from the outside. Oh, like you said, this is 7 percent rate. Who's paying 7 percent on a checking account. So just pay attention to the details because there are some great online options. One of the ones I'll throw out there is Ally bank is one as I was doing research for the show is a good one to talk about. When my youngest son or my oldest son works about, works with is American Express bank, that's one. One of the other ones I found was Marcus and I don't know too much about this one. This is a Goldman Sachs bank. And there's, of course, there's Capital One has this account called a 360 performance savings. And let me just be clear. I have no affiliate relationship with any bank, with any credit card company, with any credit union.

I just say, go do your due diligence, pay attention to the details that Craig mentioned, make sure they have FDIC insurance. Now, if it's a credit union, they're not going to have FDIC insurance. Now here's one nerd out a little bit on credit union. So credit unions are covered by the NCUA, which is a National Credit Union Administration.

Or credit unions are also state chartered so they could be covered by state charter. But again, do your due diligence, understand what you're getting into and make sure that is really the best fit for you. Because what you might find Luis is maybe you put a portion in a high yield savings account, but maybe you buy some CDs. Maybe you ladder those CDs by doing a six month CD, a 12 month, because right now we're in a weird spot I think in general, in our economy. I think we're in a weird spot. This weird inflation things going on. I don't know what interest rates are going to do. You know, one of the things I said to the client earlier today is I honestly think, and this is not a doom and gloom show.

I think we're in for a big market correction. I really think that's going to happen. And I just think we're going to see a significant downturn. I think there's going to be an upturn. I think all the things that we're seeing now are going to turn around, but I think in the short term, there's going to be a downturn.

So one of the things that I, one of the reasons I like the idea of the high yield savings is you're not locking that into anything. You're going to be able to be flexible with your money because right now I think liquidity, what I mean by liquidity is being able to access and moving around. You're not locking it in the stock market.

You're not locking it into a bond. You're not locking it into a CD. Craig, did you have thoughts on that as well?

Craig
00:40:08

I did. I'm glad you brought up liquidity because I think that makes these sorts of accounts a great place to park your emergency fund. You know, the downside of a CD is if you have to cash it in early, you know, you could take a little bit of a hit.

Same thing with stocks, you know, you can sell stocks, but if there's a downturn, you know, you may be losing money, but these high yield savings accounts are a nice place to park that money that you might really need in case of an emergency. And also, you're not limited to just one of these.

Ralph
00:40:41

Absolutely.

Craig
00:40:42

Once you understand their requirements to get the higher interest rate, you may find it worthwhile to have a couple of them or three of them. There's nothing stopping you from doing that.

Ralph
00:40:53

Absolutely. I agree with that. And I think that's a worthy thing to do because you might find this credit unit offers this benefit or this bank that offers this benefit.
It could come down to convenience. Maybe you want a bank that's right there in your neighborhood. I mean, the truth is, you know, I, honestly, I deal with a credit union and I can't remember the last time, Craig, that I even stepped foot in the credit union. I mean, I just don't go there. I mean, even in my accounting practice, pretty much all of our transactions are done electronically.

We don't even really deal with that many checks anymore. We've got some people that still write checks, but most of it's electronic and there's just no reason. So one of the things I'm going to encourage you to do Luis is don't think about it in terms of the banks that are, or the credit unions that are just in your community.

Go online, you can go to bankrate.com, you can go to nerdwallet.com, there's a bunch of sites like this, but pay attention, make sure it's a reputable site, but look and see what's out there, and don't be afraid to move it around, like Craig said, spread the wealth, it's okay to do that.

Craig
00:41:47

Well, and you can even go so far as, if you're married, you and your wife can set up separate accounts.

And you can, I mean, you're playing within the rules, so I don't think it's really double dipping. But Tracy and I could have both had $30,000 accounts in this bank, and it wasn't worth the hassle for us to try to deal with all those debit card transactions. But it could be for other people. So there are a lot of ways to, I'm hesitant to say play the game, but play the game.

Ralph
00:42:18

But Craig, that's what it is. It's gamifying it. And, you know, and you can make fun and that's a fun thing to do sometimes. I was watching something on TV that, Oh, I know what it was. One of my good friends has a podcast and it's called Walking is Fitness. And he talks about that what he's learned to help people in their fitness journey is gamify it.
You know, he says, make it, I'm going to do a 10 minute walk every day. I'm going to have this much time in this. You can do the same thing with your finances. It's okay to gamify it. You know, as long as you're aware that it's not, you're not, you're not throwing the dice and saying, what am I going to hit here?

But you can gamify this and you can have a great deal. I won't say fun, but if you're a nerd like me and you'd like to look at investments and all that, it can be a great deal of fun to try to figure out, you know, like you said, you and your wife, Tracy, could have done something where you put a little bit here, a little bit there, you both could have benefited from it.

It reminds me of one of those offers, like when you go out to the grocery store or something, and it's like, you know, you don't own, if you spend this much money, you get this much back. Well, so my wife and I get two separate carts and you know, she goes first, I go second and we're doubling the bonus. Hey, you know what?

I think that's a reasonable thing to do. Why not?

Craig
00:43:20

Yeah. I mean, they set the rules. You're just playing by them.

Ralph
00:43:23

That's right. As long as you're playing by the rules, that's the key, right? You don't want to get locked up. That's not fine. So let me end with this. So here's my key takeaway question.

I think you need to ask, you know, what are the most important features you're looking for in a high yield savings account? Is it convenience? Is it the ability to get to the money easily? Is it the rate? And then take a look at it and see what current rates are in your banks, your credit unions, and find out which one's best for you.

And here's the thing. You can't really make a bad decision because if it's FDIC insured or NCUA insured, Hey, if the bank, you get on the bank, the bank, it's on your nerves a month later, transfer it. It's okay. Now, another thing you got to be aware of. My wife and I are into this the other day. Be cautious because most banks have a number of transactions per month that you're allowed to take from these high yield savings accounts, or they'll reduce your rate or they'll move you into a traditional savings account because you got to understand it from the bank standpoint.

When I used to run a credit union, I was on the other side of the desk. We wanted to be able to lock that money up because we're lending it out on the other side. We might be doing a five year car loan or a four year boat loan or a home loan even. So we're trying to lock that money in so it's a little bit of a game but pretty much if you just want to say, Hey, this doesn't work for me, you can move it to somewhere else and just, you know, and be willing to, you know, the other thing I'm going to say here, Craig is don't just set it and forget it because it's real easy to go into that mentality.

I want to set it, but then you don't realize all of a sudden that this bank's offering, you know, a half a percent more. Well, if you've got a lot of money, a half a percent is a lot of bucks. So pay attention to what's going on.

Craig
00:44:56

And those rates can change. You know, Apple savings has dropped their rates two or three times in the last month or so.

Also watch fees. So you need to make sure that you're not going into something that's got fees that, that more than offset the interest rate. I think most of them are low fee, but you just need to be careful of that.

Ralph
00:45:19

It's interesting you brought that up and I didn't have it planned to talk about on the show today, Craig, but I had a client in as probably a week ago and they were raving about how they love this credit card.

They get all this cash back and they get all these bonuses and all this kind of stuff. And I said, that's great. I said, but I looked at your financials and you're carrying a balance with them. He's like, of course I am because they give me all these bonuses. I said, Okay. Let's do a simple math equation.

And when I looked at the numbers, Craig, I wanted to cry because yes, they were getting the no annual fee and they were getting the, this perk and the, that perk. But I looked at it, they paid like $4,000 in interest on this credit card over the past year and what did they get in perks? I think a whopping $1500.

And I looked across the desk and I said, this is going to sound terrible. I said, but you guys don't realize you're losing money. You know, and it's so many people lose sight of that. So that's why I think it's so important what you said, Craig, because it's real easy to go into it with the mentality of, Oh, this is a great rate.

This is so, this is fantastic. But then they're eating you alive with fees. Like Craig said, if you're not getting those debit transactions, they want you to get, Hey, all of a sudden you've got a big problem and you're not really getting the, we'll call bang for your buck that you thought you were going to get.

Craig
00:46:33

Absolutely.

Ralph
00:46:34

Well, Craig, I think that's about it for today. That's the questions that I had. Anybody have any other questions in the chat? I'm happy to answer them. I just want to let everybody know. One of the things that I do is I do write a blog post. And I've got a button. Here we go. So if you're interested in our blog post, every time I do a show, we have a blog.

You can get to that by going to askralphpodcast.com/blog. I do a daily show. It's both on audio and video. And I write a blog every day. The other thing I want to ask you to do, if you would consider it is support the show. You can go to askralphpodcast.com/support. Right now we're working with a company called buy me a coffee.

Now, listen, I don't even drink coffee, so you're not going to give me a coffee, but it's a way to support the show. And you might say, Ralph. Why do we want to support the show? Well, this is the reason you want to support the show. So we can reach more people, so we can be on more platforms, so that we can help other people who are trying to master their finances with that faith perspective.

So that is really why we do that. So Craig, I just want to thank you again for joining me on the show today. Craig has been a great partner for hearing me. He makes me think of stuff that I hadn't thought of, and now we're even matching. So I guess now we're gonna coordinate every week, Craig, and we're gonna say, okay, we do a red shirt today.
So, but now it might be a game. See, we might gamify this.

Craig
00:47:47

There you go.

Ralph
00:47:48

You know, we could, we may, we may be able to do that. So, Craig, let me let. We got a couple extra minutes. Craig, what's going on with AI Goes to College? Any, any big things going on on your podcast?

Craig
00:47:57

Yeah, we're working towards a big project, maybe early summer to try to help faculty better figure out how to deal with AI.

So it's rolling along, you know, things are changing all the time. Open AI's deep research was the latest big one. And it's pretty amazing. Pretty amazing. I produced about a 30 page document in about 15 minutes today.

Ralph
00:48:24

And I want to tell you, just because AI Goes to College, you would think that that Craig's podcast is only for higher education.

It's not. I'd love it to learn about the new things with AI, because listen, folks, this is where we're going. AI is a reality in our world. And I think it's great that Craig and his co host really deep get into that because it's a reality and you're going to be surrounded by this. And if you understand what's coming at you, understand the nuances of that,
it is very beneficial. So I'm going to, I'm going to encourage you to go check out Craig. I'm going to put his information right there on the screen. It's aigoestocollege.com because it is a fantastic podcast. Well, before I close today, I just want to say this. I want to thank everybody for joining me.

It's been great having you. And if you feel like you're overwhelmed, if you feel like you need some help with your finances, you can reach out to me, just go to askralph.com. When you get there, you'll see a button at the top that says, book a call with me and I would love to help you. So as we close out today, again, Craig, thank you so much for joining me and everybody.

I hope you have a great day and make sure you tell everybody about our live show every week at 1 PM Eastern time and the daily show you can catch that at askralph.com. So goodbye everybody and have a great day.

Craig
00:49:37

Thanks.

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