Jan 10

Flashing Red Lights - Childfree Wealth Podcast Ep. 59

​​The Childfree Wealth Podcast, hosted by Bri Conn and Dr. Jay Zigmont, CFP®, is a financial and lifestyle podcast that explores the unique perspectives and concerns of childfree individuals and couples. In this episode, Bri & Dr. Jay discuss flashing red lights - issues that require attention.

They cover various topics, including estate planning, budgeting, debt, disability insurance, the complexity of mixing investment strategies, and the importance of understanding taxes. You’ll also hear them touch on the challenges of caring for aging parents and the risks of being underinsured. The episode emphasizes the need for proactive financial planning and offers insights to help listeners navigate potential pitfalls.


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Dr. Jay
Hey Childfree Wealth, listeners, this is a topic I've been wanting to do for a while, and I had to get Bri to put it on the list here, because if you haven't figured out, Bri’s the ones in charge of this podcast, she just tells me what to do. And this topic is what I call flashing red lights. So when we meet with people, we do initial introductory meetings for about an hour and we do ongoing meetings.
We meet every month. I'm always looking for flashing red lights. These are like things like, hold up, stop. We need to fix this. I understand the rest of the stuff matters, but this is a priority. And I think it's a good way for you to check and go like, “Hey, am I, like, doing this stuff?”
So we're going to go through a whole bunch of them and why we see them as flashing red lights. This is not all of them, but like these are the ones that just stop me in my tracks. We'll work through that. Bri. So you do have a favorite flashing red light or like something like this, the one you love to talk about?
Yes. It is your beneficiaries being wrong because this is something that happens so easily and people are like, Oh, I did that already. Might have done it. But that doesn't mean all systems continue to keep sometimes systems messed up and they will delete beneficiaries or they will change them back and they won't save them. And this is probably one of the most frequent ones that I see, because it's not something that we think about or necessarily even know.
Dr. Jay
Yeah. So let's talk about this one. So a beneficiary is somebody like on your 401k or retirement, other things, your life insurance, that is the person that gets that money and we'll often find this like by mistake. Yeah. Like we'll be scrolling through their accounts or looking through there and like, wait, there's no beneficiary. We're like, like, scrolling & going who the heck is that person? You know, they've never mentioned them. And it becomes very… we actually recommend once a year when you do open enrollment to check your beneficiaries sometimes like the HR system picked up like old random things, who knows somebody. I had somebody the other day their account got moved and it came with an address from two years ago, like random things. Now, let me tell you about an interesting beneficiary story.
Kind of sad one, too. So one of my friends, his friend passed, late thirties and had a pension. His ex-wife was still listed as the beneficiary. And by the way, the new wife went and said, hey, can I get the money? The ex-wife was like, nope.
And by the way, there's no way to change that. Your will does not pass over your beneficiaries. It doesn't change it. You can't go to court and say, change it. The ex-wife got the pension.
This is one of those things like, if I see something weird here, we got to stop.
Yeah, I think it's a really important point you made there, beneficiaries supersede the will, so whatever you beneficiary is listed doesn't matter if your will says something else. It is going to be what the beneficiary says.
Dr. Jay
Absolutely. And people always try to tell me, no they can't change it in the system. No, they will. It just does like it just magically changes. I don't know why. Like it's your HR system or something else. Changing these in the back, always double check.
I'm going to pick one from the list. By way, Bri made up a list just to spin me up on some of these. I love this one. Spending more than you earn.
Well, do the math. You go. Okay. You're bringing in $7,000 a month and you're spending nine. That's a flashing red light. We cannot pass. Go. Do not collect $200. Do not go further.
And I think it sounds simple.
But most people don't realize how much better you have. You know, a budget from a system, you have a structure. I will add things up and in on our initial meetings. I'm just doing back of the napkin math, writing down on my notepad and I walk through I'm like, wait, you said you spent how much and your rent is how much? And one of the ones that's very common here is like, I'll see housing the expenses that are way out of whack.
You know, my general rule is about a third of your take home goes to housing. Once you get to half of your take home going into housing, you really don't have money left over for other things. When you get to two thirds of your money going to housing, I don't know how you make it.
You know I had somebody in L.A.. In L.A., housing is stupid, expensive. And I'm looking at their numbers. And it was something like 75% of their taken was going to housing.
I'm like you can't afford groceries like we have to stop there. We cannot do anything else financially. There you see misery.
Yeah, I have. And I think sometimes, at least in my opinion, when I say housing, I mean like including utilities. And those are different things. Some people are like, no, it's fine if your rent is at well, okay. But utilities can also be a large expense that count as your housing. So I include that when I say housing.
What's your thoughts on that?
Dr. Jay
Yeah. I look at it as a total number. Now, Boeing, I said about a third like, you know, if you're like 36%, I don't care.
I'm talking about these big, you know, jumps in numbers.
And I'll have people say, well, I don't know why I can't make ends meet. I'm like, I do. It's not Amazon or whatever DoorDash or whatever it is. It’s your housing.
You know, and that's a total out. They’ll go, but I'll get a roommate. Well, that doesn't really fix it. It's because you don't know they're going to give you money and all that. Oh, it just becomes a problem. Alright, Bri pick your next favorite.
No estate planning paperwork. I love estate planning. We all know that by now.
Dr. Jay
You're special. Tell me about it.
So this is going to be what happens after you pass in the case of a will. Oh, well. Says where your money is going with that. You have an executor who is the person in charge of sending your money and taking care of things, tying everything up after you pass. There's also a financial and medical power of attorneys.
They make decisions for you while you are still alive and are unable to make those decisions for yourself. So they have power of attorney. They have the power to make choices for your medical or make choices for your finances while you're still alive and are unable to do that. And if you do not assign somebody to those positions, then the state gets to pick for you.
And I do not trust the state of wherever I live in the Midwest to handle those things for me.
Dr. Jay
It’s not just the state of wherever you live in the Midwest. If you're traveling and you don’t have this paperwork, it's whatever state you happen to be.
Yeah, the state of wherever I’m at.
Dr. Jay
Yeah. And I don't care what your politics are, I don't trust the government to make decisions for me. And the other one, by the way, is, you know, if you don't know the will, they'll go, oh, well, we'll try to find your next of kin in theory, but I live in a completely different state than all my next of kin they'll put I get added the newspaper and be like anyone know, Jay? No. Okay. Thank you. We’ll take his money.
Yeah. That's why we have to have this paperwork. Finding some sort of way that whole separate topic. But if you have no paperwork, you've got to get it done now. You’ve got to get something in place. People will be like well, the only person I have right now is my mom.
Okay, that's not a good solution long term because they're older than you, but least listed as something to start. And this is really important for the soloists. Single, no kids. You got to have somebody on that paper. The medical power of attorney gets filed with the doctor all that. Now let me pick my next one, one.
Hold on, I want to add another point on that. It is also important if you recently got married or divorced to update your estate planning because you want to make sure the person you either commit to spending your life with or you have separated from, the correct person is in charge there.
Dr. Jay
Makes good sense. All right. Next on my list, we had a whole bunch of one on debt that like flash.
But I want to talk about one that really drives me crazy. And by the way, this has now become a rant session.
It's okay. But like me, these are the things that like we see with clients and well, it just jumps out is I’ll see people with, you know, five or 10,000 dollars in credit card debt and $20,000 in their savings.
Okay, so pay off your credit card tomorrow. Well, but I like having my nest egg. My emergency fund.
I'm like, yeah, but the credit cards charging 20% or 30% a year. And if your savings are in a regular savings account, less than .03% or even a high-yield savings account is 5%.
You've got to go pay off your debt. Now, I've had this battle with people all the time, like it's one of those that occurs almost once a week. People will go, but I need this cash because… and I'm like, yeah, but you're paying to keep the debt. And that's the hard part is like, how do you get somebody who's got this mindset that is, yup, I've got my savings. I like it. I don't want to pay off my debt.
What do you think, Bri? You and I have had these arguments before.
Yeah, and one I think you can really be depend on interest rates, why people are resistant to certain things. Obviously, if it's… I say anything over then five like let's work on really getting that gone then I'm anything else less then. I'm like, okay, we don't have to be as crazy about like hammer down, lead foot on it, still take care of it, make it a priority.
But I'm not going to say you need to down do nothing for the next six months in order to get it gone, because I think there's a life to live. But I do. I had this really interesting conversation with a client recently and I did not mention anything. I came up with different ways. They had a large amount in their savings and they had some debt.
And they reached out to me and they said, hey, you know, in our next session, can we talk about taking some money from savings and paying off some of our debt with it? I was like, absolutely. But I didn't come up with that conclusion for them. They had to come to it themselves and that was a much more beautiful answer because it was something they wanted to do that I wasn't really hammering down, pushing.
Dr. Jay
I'll hammer much more. I'm just I just style things. I mean, you know I'm will get that is still your future and it's okay by the way to have you know we have different things which I read of that kind of get both of us differently. And I think the other one I see on debt is like, oh, I've got all my money in my… I'm going to pick on Robinhood today.
I've got all my money in my Robinhood account. It's a brokerage account, but I've got debt like, no, you pay off your debt first, then you invest. And I think that's hard for people to get. I can make 7% on the market. Yeah, but you're paying 20% on the credit card like it's just… paying off the credit card is a risk free tax free return.
I've also had people come to me and you know, hey, I want to take out $100,000, million, whatever, in debt. And I'm like, well, that's not something I'm cool with. And sometimes it makes sense, sometimes it doesn't, but we'll have a discussion about it. But I think the hard part is like debt can completely mess up your plan. And for people that are heavily in debt and they still got money hanging around them like we're just not using our money, right. There are times where I'll give in, but there are other times I'm like, no, like, we got to fix this.
And yes, I know debt is a divisive issue, but let's be real on our No Baby Steps program, we’re no debt place. You know, though, baby steps do get our debt if you're looking for how to leverage and how to get a lot of debt and all that, go see Grant Cardone or the other ones that are about getting in a lot of debt.
I'm not hating on it. It's just not the way we do it. It's okay if that's the way you want to go. I just don't think it's the right option. So it's a flashing red light for me.
Alright. What's next on your list, Bri?
Lacking disability insurance, not having that in place because disability insurance is going to help protect your income in the event that you become disabled. Which one in, what is it? 30% of people will at some point use or go on disability, become disabled in their lifetime, and if you don't have the finances to support living on one income or if you're a soloist living on no income, becoming disabled can be really traumatic and a financial emergency.
Dr. Jay
Yeah. By the way, people think about well, Social Security company and technically, by the way, Social Security, old age security, disability income. I've had it figured out it's only SDI, but it's like $1,000 a month, maybe $1,500. It is not enough to live on. I mean, let's just be real on that and we’re talking about for the rest of your life.
I don't care what age you are. You got to get disability insurance, life insurance for childfree folks we can skip in most cases. Disability we can’t. The other thing with disability is I want to make sure I have enough coverage. I’ve seen this recently where people like the employer coverage for like two years.
Two years, that's nothing. So I'm 45 and I get disabled and I get disability till 47 and then I'm like good luck for the next 20 years. Whatever.
Or, you know, I think if your employer does not offer disability, I always send people to group policies. One of my favorites to send people to is actually the Freelancers Union, because a lot of people are freelancers. You can get it through there. I don't know. But you’ve got to get disability insurance.
Yes, I 1,000% agree. And it's something that we're not it's not talked about and it's is on talk about you when you go to an insurance broker sometimes they're not going to even really mention it. Instead, they'll sell you life insurance.
Dr. Jay
Yep. Next on my list is what I call mixing recipes.
I will hear them talking about two or three different things I try to do at once, like.
Hey, I won't go, Oh, I want to do this investment plan and I'm trying to get out of debt and I'm buying an IUL. By the way, don't get me started on IULs that's a separate thing. I'm life insurance and people are sold insurance. We’ll do a separate episodes on it, but they're mixing recipes that they found usually online or friends said.
And I think, it's a natural thing because we're getting information from all over. But if you take a piece from this and a piece from that you end up with, some of it doesn't match it. I think the other one on the mixing recipes is there's a different recipe for the standard life plan and being childfree. And it comes across very quickly when you're having discussions, people will be like, oh, I want to buy a house. I'm like, why? Well, because my dad says, I need to buy a house.
And I'm like, that's good for your dad. That's not necessarily good for you. What's the standard life plan and yours? I think those recipes should get mixed all at least I know you're more on this social stuff than I am. I agree. I mean, you seen it, too.
Yes, I see it. And then I've kind of been in the mood where I just would rather throw my phone in the river. So I've kind of been kind of ignoring a lot of it. But I have seen Bernadette Joy and she recently has been a couple articles, cameramen, exact headline, but it's something along the lines of, I paid off $300,000 in debt, pay off your debt, then invest human suck at multitasking.
And so I will find the article and link in the show notes. But I thought it was really interesting and a conversation I had with a lot of people is it can be hard to focus on multiple goals at one time, right? We're not trying to run a marathon at the same time, we're trying to prepare for a bodybuilding contest. Like that just doesn't make any sense.
And you can't focus on both those or do both of those to your full capacity. So why are we going to focus on paying off a bunch of debt and also trying to investing really hard at the same time? Those things don't really work.
Dr. Jay
Yeah, and I think the question I use with clients that I go whose voice is in your head telling you you got to do that, which could be influencers, it could be your family, could be culture, could be other people. Yeah, but who is driving you to say I do all of these at once or I do this in that.
We're like, do one step, then the next you can have five goals, but you have first goal, then second goal and third goal.
You can't do them all. All right. What's next on your list, Bri?
Aging parents and having a plan for them or not knowing anything about what's happening. I think you'd be surprised that the amount of parents we see, who things just aren't set up properly, they might not even have a will or estate planning in place. Like I talked about a little bit ago in this episode, just not having a plan for them because they can really impact your financial life and just your life in general.
If something happens, then it's much harder when something becomes an emergency.
Dr. Jay
Yeah, and I'll see signs of this one. This, this is was like we're doing their budget, working through it now. Like, Yeah, I get $400 a month to my parent uncle for what? And they go to school. I always have and I'm like, well, why? What are we doing? What's the boundary? What's the support level? Does it go up over time? Are you paying for their long term care? All of these things.
And they're like, well, but it's just a cultural thing we've always done. And I'm like, yeah, but you need a plan for it and you need to know what their situation is.
And the only parents we're taking on as clients here regularly are parents are of childfree folks. It's amazing how you dig in and you find stuff that the parents don't know or the kids don't know or whatever. And it's like, wow, you know, there's not a plan here. In actuality, if you don't have a plan for your caring for your parents, it can be worse than not having a plan for yourself.
Are they going to move in with you or not? You're like… My wife and I, nobody moves in with us. That's just kind of how we're doing it. But we'll support in other ways and you got to find that balance all the way. I find that asking people, other parents, it's kind of like either one's like, please take this over for me. Or they're like, yeah, I don't really wanna talk about that right now. It's kind of nowhere in between. Is that fair?
That's fair. And I also think it's important to say, you know, just because you do something for one parent doesn't mean that you have to do it for another parent. It's okay to have boundaries and say, yes, I will support this parent, but this parent has not been a good parent or whatever, and we're not going to help them.
That is hard. But if you need to do that to protect your mental sanity and just yourself as a person, that's fine. There's no judgment in that.
Dr. Jay
It's a discussion we're gonna be having more and more and more. And we, as a society, need to figure out better ways to take care of our elder folks. And that's part of the reason we worry about our own aging. And we’ve got to a plan, but we're not gonna fix that in a podcast, that's for sure.
Next up on my flashing red lights is, let's call it not understanding investments, but I really mean like doing random stuff with their investments. So I'll see this a lot. And people I don't recommend crypto because I have no clue what it is as an asset and what its history is and where it's going to go.
Now, the technology, the blockchain makes sense.
But what is dogecoin? I don't know. Yeah. What are these things? People go, well, I bought a little of this and I did a little of that.
And I go, cool, what was your investing strategy? What does it mean? How does it impact your finances? What's the tax implications? They go, I don't know. And I'm like, well, then we shouldn't be buying that investment. Or even worse, my friend said. If your friends invest in something like, no, that's not a reason to invest in it.
Or even worse, they've been working with somebody for their finances & just have no clue what that person's ever been doing. And Bri, I know you've got something to say about fees and investments.
Oh, yeah. I am not a fan of fees or investment management. I think that you need to understand what's happening, and I think you need to learn what's going on because I mean, not to say like Bernie Madoff, those people didn't really know what was going on. They were just giving him their money. And look how that turned out.
I'm not going to say that that's going to happen with everybody. But my point is, know what is going on with your money and be attentive to it and work to understand it. Don't just hand it over and say, well, they'll deal with it.
Dr. Jay
Yeah. And I found some people where they've been following some strategy that somebody set out for them decades ago and it makes no sense. And I ask them, Why are you doing this?
Well, because I had this person or my parents had this person. And this is what we've always worked with and we just trust them. And I'm like, you trust but verify. Okay?
You need to understand what you’re investing in, why, how it impacts your finances, all of that. You know, our focus, we're advice only. We just teach people to do it and we look over their shoulder and show them how to push the button. But they have that control. You need your investments to work. You don't need them to be sexy. If you're like, hey, if you're like, hey, this, I want to be in this because it's the cutting edge of something, I’m like okay, fine. Put like 1% your money and no more, like just who cares that might disappear.
But you have to have a plan.
And I think one thing we've recently ran into has been people have had plans in the past, but now life has changed or income has changed. And usually those plans initially say, fill up your Roth IRA. And so they continue to do that, but now they're over the income limit. And so we have to go back and reverse that.
So as your income changes, you need to go and work with somebody and figure out update your plan, because contributing to a Roth IRA when you're making $300,000 a year. You are over that income that you cannot do that. There are penalties if you don't reverse those things. And so getting those taken care of and updating the plan over time, it's very important.
Dr. Jay
Okay. And I'm going to it's time now for Bri to give one of her red lights, but that just spun me up & I’ve gotta do this. The other one is taxes and understanding, like which accounts how this works. Right now. People are so excited by this backdoor ROTH. Every time I see a backdoor Roth IRA, it’s a disaster because it's not done right, not documented right.
I like you got to understand the taxes behind what you're doing. Investing you can understand pretty simple. We talk about long term passive investing. It's simple. Let it go.
But the tax part of it is so huge and I get people like, well, you know, I maxed out my 401(k), cool. And then I changed employers and maxed out that 401(k). No. No, you can't do that or oh, hey, I did a backdoor Roth, but I still have these other IRAs. You can't do that. Or I did this and I didn't file this tax. I'm like, oh, nightmare. Like and they're like, well, my tax person said, I could do it. Okay, well, remember, your tax filer takes whatever information you gave them and files it. They are not the IRS saying this is good or bad or ugly. Some will provide more judgment, some won’t. If your tax preparer says you can write off everything personally on your business, they're wrong. There's some of these things like, I don't want you to be a tax expert, but man, there are times I'm looking at some of these taxes. I'm like, oh, this is hurting my brain. That is because like there's no plan behind it and I always feel bad about that, but I'm like, this is not right.
And we've had people, you know, correct these from previous years and other things. It's a whole lot easier to do the right way the first time. We do tax planning twice a year, you know, kind of after you finish… after your file your taxes on April 15th time. We double check that just before the end of the year we do more tax planning because it's such a big thing.
And I will tell you, with tax planning, probably one of the few things you can’t learn on your own. You know, I'm actually on an IRS mailing list and they send me like two emails a day for things that change. Way too much, but I'm like okay, this is going to impact my client.
You're not on the IRS mailing list, double checking things. I mean, it's just like.
And I’m not saying I’m perfect either. You know, we're going to do tax planning. Somebody else is going to do tax filing. We can still miss things, but man taxes can be a flashing red light. And by the way, just cause you make cash does not mean you don't have to pay tax on it. And just because you have a 1099 or work for Uber doesn't mean you don’t pay tax. You have to pay tax on every dollar. If you steal $1,000,000 from the bank, you still have to pay tax.
That's true.
Dr. Jay
It’s true.
Don’t do that though.
Dr. Jay
Yeah. Let's not do that. But if you're in the U.S., you're taxed on your worldwide earnings. Moving to another country is not gonna change that. Like all these fancy. It really just drives me crazy when somebody says I went to like X Y Z Innovative Tax Planning and I'm like, ooh, innovative in tax. Ooh, that scares me. Like, I'm like, we go right up to the line. We do exactly what the IRS says. We can save money, but we don't go over the line.
Alright, Bri what's your last red light?
Oh, it would be having either no insurance or being underinsured, especially when it comes to things like your home or your auto or even your health insurance. Because if we're not having proper amounts of insurance on there, that can be really bad. Especially think about if you're in a car accident and you have too little of insurance and somebody has to go to the hospital, it goes to your insurance while your insurance is only to cover up to the limit that you're paying for.
And if you're paying for $10,000 or $25,000 coverage, somebody is in the hospital, they can very easily surpass that limit. And so making sure that you have enough coverage on there is going to be really important, especially just to protect yourself because you don't want to have to pay those things out of pocket and then accidents do happen.
Dr. Jay
Yeah, I would echo this and say, if you're on what I call a kid insurance, you need to be on adult insurance. The 25,000 coverage is when you’re like 18 again and can’t afford real coverage. You need to have good coverage. Most people get to a place where they have to have auto, renters, and umbrella insurance coverage because people sue for any stupid stuff like anything. So you've got to find a way to work that through. Say alright, do I have the right insurance?
But at the same time, I don't want to have too much insurance. It is an adjustment. You know, there are some things I love to add on, like, for example, on whole or renters, you can get for 25, 50 bucks a year cyber coverage and identity theft coverage. Really great coverage because that happens all the time.
You know, certain things will happen. I think the other part is what I don't like to see is, hey, I couldn't afford the insurance, so I have none.
Well, if you can't afford insurance, you can't afford a problem. And I had a conversation like one of my colleagues on this. So they live in Florida and their homeowner's insurance was going to be $10,000 a year. And I'm like, that's crazy. Their answer was to go without insurance. And I'm like, that's crazy too. Like I don't have a great answer.
You know, it’s a risk, but if you can’t afford to replace the car or the house or whatever, you can't afford to go without insurance. And it's hard, like it's a balancing act. I think people like especially with cars, they have been on the same insurance forever and they just like get a new car, they send, you know, the person, hey, I got a new car and they never look at it. You have to be looking at it. Actually the best thing for you from an insurance standpoint, is twice a year, every two years to actually go and shop insurance to see what's better rate. You at least need the basic coverage now, we went through a bunch of red lights. This is not everything. There are times…
So we meet with clients all the time and every once in a while, it’s like where did that come from?
Like it's all a middle out of nowhere. And they go, yeah, that's a red light. I think what we're trying to do with this list is just give you some things to watch out for. If you've seen things on here that like, hey, that could be a problem. Well then, we need to fix it now.
You know, you can look through all of our resources. We've got podcasts on most of this stuff to help you through it, but you need to figure out the priorities. And the first priority is to take care of the flashing red lights.